Funding Options for Small Business Owners

By: David Castro

Small business owners know that obtaining credit lines for their businesses can be a difficult task to accomplish, especially if they own a fresh business or simply a business that doesn't have a strong credit history. I've come up with this list so you as a business owner can have an idea of who to reach for your financial needs.

Secured loans: For business owners with strong credit history.

Startup Loans - Small business startup loans are used by merchants that need funds to develop an idea, buy a franchise, or simply open a brand new business to the marketplace. Most startup loans are offered by lenders that require personal assets to secure their money.

SBA Loans (from Wikipedia) - SBA programs are not generally for merchants with a bad credit history who can't get bank loans, nor are they primarily used for startup funding; rather, the primary use of the programs are to make loans for longer repayment periods and with looser affordability requirements than normal commercial business loans. Also, a business can qualify for the loan even if the yearly payment would be the same as the previous year's profit, whereas most banks would want payment for a loan to be no more than two-thirds (2/3) of the prior year's profits for a business. The lower payments, longer terms and looser affordability calculations allow some businesses to borrow more money than they could otherwise.

Secured lines of credit - A merchant's line of credit is a revolving type of credit that can be used to access a limited amount of working capital. Merchant credit cards for example, are a type of line of credit.

Unsecured business loans: These types of loans or cash advances are for merchant who may not have a great credit history or simply for merchants who doesn't want to risk personal assets.

A business cash advance - Merchants that accept credit cards as a form of payment can sell a small portion of their future credit card sales for a given sum of cash. These types of advances are more expensive but have some advantages that attract most small business owners. Both, the lender and the business owner agree on a daily payback percentage that will be deducted from future credit card transactions until the advance has been fully paid.

Invoice Factoring - Is the process of business owners that sell their unpaid account receivables at a discount for. Invoice factoring differs greatly from bank loans, the value of the invoices are taken into consideration and not the business credit history, invoice factoring is not a loan product, instead it's a purchase of an asset and last but not least this process involves 3 parties instead of 2 that the bank does. These parties are: the Seller, the debtor and the Factor.

Unsecured business Loans - These types of loans require no personal collateral. Unsecured lenders will only fund business owners who have a good to perfect credit history, this is what defines whether the business owner qualifies or not for the loan.

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