If you own a business, you know that cash flow isn’t always consistent throughout the year. Sometimes it’s pouring in, and other times it’s basically dried up. While some businesses, like seasonally driven ones, plan for times of the year where their cash flow will recede, other businesses have no idea when that might happen and need a backup plan if that happens.
While there is no shortage of funding options available to businesses, you want to make sure that you choose the right one for your business. Before going to a lender, it’s helpful to understand some of the different funding options and what they are used for.
Line of Credit
Instead of a lump-sum payment from the bank, a business line of credit is a flexible amount that you can use as you need it. Depending on your personal and business credit scores, you can be approved for anything from $1,000 to $500,000. Additionally, the interest rate is typically anywhere from 8 to 24%. Most banks do require that you have been in business for at least 6 months, have a 560 or higher credit score, and make a minimum of $50,000 in revenue each year.
One of the benefits of using a line of credit is that you only pay interest on the exact amount you use, and you aren’t required to use it, but it’s there if you need it. Additionally, you can use the money to pay for anything your company needs, whether to hire more people or expand to a new location.
Short Term Loan
These loans are an excellent choice for any business that is in desperate need of cash. You can quickly apply online and have the money in hand in as little as 24 hours. When applying for short term loans, lenders typically require that you have been in business for a few years and have a good credit score. Furthermore, they might require that you use some personal collateral to secure the loan.
One thing to remember about short term loans is that they typically don’t fund for more than $500,000. Additionally, they are usually required to be paid back quickly, generally within a year or two and come with a competitive interest rate, starting around 8%. These are a great choice for businesses with unexpected expenses, need help with payroll or hiring new staff, or even those who want to go out on a ledge for a new business opportunity.