Small businesses may need extra funds for various reasons. When a market is growing, the company will be in need of additional money.
Clients could be late on paying the invoice, or some clients may cancel collaboration with your business. Small business needs steady cash-flow to get ahead of the competition and grow on the expected rate. Small business financing is not a difficult task, but it includes lots of tools. Today we would love to compare different financial tools.
Traditional Bank loans
After a market crash in 2008, getting traditional bank loans became very hard. That’s a complicated process, especially for small businesses. Most of the small business has no huge credit history with financial institutions so that they will end up with a declined request.
Banks always ask you about lots of stuff. They will ask about the past relationships with the banking system, and you may also give them your business credit score. As for today, it’s a very tough task to get approved by the traditional bank loan system. Banks only accept up to 25% of applications. As for the quick cash, traditional banking loan is not an attractive financial tool.
Business Line of Credit
When financial institutions give you access to a certain amount of money, it’s called a line of credit. They give you a chance to access specific budget whenever your business needs.
That’s exciting tools for small businesses. The company can take any amount from that budget and replenish it anytime. As you recharge it, you can start the same cycle again. That’s a win-win position for both, small business and financial institutions.
Unlike the traditional banking loans, you don’t have to follow a specific monthly schedule to pay for credit. With a line of credit, you take the money and replenish it anytime your company can use the payback.
Keep in mind that a business line of credit is only for a certain amount of money, and you can’t use for big goals.
It’s a very easy and straightforward process. When a small business has unpaid invoices, owners can get in touch with “factoring” companies and sell unpaid invoices to them.
It’s not a traditional loan; your company gets paid for the work that’s already done. Well, it has some side effects you may face while using it.
The factoring company will need access to personal information of customers so that it may be a problem for small business. Most clients don’t want to give their personal information to third parties so that they will complain. Be ready for complaining from customers, if you choose invoice factoring as a financial tool.
As for today, there are different ways to fund your small business rather than traditional banking loans. You may need to hire new faces in the company or buy new equipment for efficient work. No matter what is your reason, as a small business owner, you’ll always be in need of extra funds. Steady cash flow means too much for companies, so choose a reliable and trusted financial tool wisely, before going for it.