Whether you run an established small business or are just getting started, you may need outside resources to finance new prospects or weather a period of uncertainty. The form of financing that is appropriate for your company will be determined by how much money you require and whether you require it for a short or lengthy period of time. Your company’s creditworthiness—its ability to secure financing—will also be taken into account. Most major banks like Bank of America offer a variety of financing options for small enterprises. Alternatives to traditional lenders may make sense in some circumstances, depending on criteria such as your stage of development.
The most popular types of financing for small businesses
Credit cards for businesses
Typically, business credit cards are used to manage transactions for day-to-day purchases. Some business credit cards provide benefit packages designed specifically for businesses, such as cashback on regular purchases like office supplies. A business credit card, unlike a personal credit card, allows you to establish a credit history for your company.
Interest rates and credit limits on business credit cards are greater than on other types of financing. A personal guarantee, which is a promise to repay the amount personally if the firm is unable to do so, may also be required.
Like business credit cards, lines of credit borrow funds money indefinitely up to the account’s limit, with a variable interest rate and monthly payments that are based on the amount borrowed. Lines of credit, unlike business credit cards, are intended to assist manage short-term financial needs for up to a year while also offering access to cash to help with cash flow management. When compared to credit cards, credit lines typically feature bigger credit limits and lower interest rates. Lines of credit, on the other hand, rarely give a time limit during which you can charge without paying interest. There are secured and unsecured credit lines available. On the line of credit, most lenders will want both a business and personal guarantee.
Seasonal sales enterprises can benefit from this form of funding. “A business owner may use the credit line to invest in goods during certain months of the year, but the extra cash may not be needed during busier sales months,” adds Roderick Wilson, a Bank of America Small Business Strategy and Product executive.
Term loans are frequently utilized to fund the purchase of business assets or to finance business expansion over time due to their low-interest rates and predictable monthly payments. This form of loan allows you to get immediate access to a lump sum of borrowed funds. Then, according to a pre-determined payment schedule, you make fixed monthly instalments. The loan’s period is determined by the loan’s purpose; some term loans are as short as one year, while others might last up to 25 years. These loans can be secured or unsecured and have a fixed or variable interest rate. Many business owners choose a secured term loan to achieve the best interest rate. Some term loans may need a personal guarantee from the small business owner.
Loans from the Small Business Administration (SBA)
SBA loans can be obtained via SBA-approved lenders, which include a number of large banks. SBA loans often require lower down payments, easier qualifying standards, and longer terms than other types of small business loans because the Small Business Administration guarantees them—that is, the agency pledges to pay a set proportion if the borrower defaults. “SBA loans are perfect for business owners that want to conserve cash and are searching for a low monthly payment to help manage cash flow,” says Karen Harrison, Bank of America’s National SBA executive.
The SBA guarantees three primary loan types offered by SBA lenders:
- The SBA 504 loan, which is best suited for larger acquisitions, is only available for commercial real estate and significant equipment/machinery.
- The SBA 7a loan is a general-purpose loan that can be used to fund commercial real estate, equipment, working capital, tenant improvements, business acquisition, partner buyouts, and debt refinancing, among other things. These loans are limited to a maximum of $5 million.
- The SBA Express is a modest loan program that can be utilized for operating capital, equipment, and minor tenant renovations like carpet and paint.
- SBA loans can be secured or unsecured, depending on the loan program, use of money, and term.
Here is the “4 Bank of America Small Business Alternatives“.