There are 28 million small businesses in the USA, according to Forbes, and many small business owners need to borrow money in order to keep their companies afloat, especially during uncertain times. While some small business owners qualify for help from the government, others need to find ways to grab capital outside of government relief programs, without overpaying for what they borrow. Every SBA owner needs to wear many hats and make many choices. Deciding on a sensible and affordable borrowing option is one of those important choices.
Alternative lenders may be right for you
Alternative lenders are lenders who aren’t big banks and operate in a different way: Nav explains that business advances are offered in place of loans, for example. These alternative lenders offer financial products, such as merchant cash advances, and sometimes approve loans when big banks wouldn’t. With a merchant cash advance, a small business owner will get a lump sum amount (called an advance) from the lender. That amount will be repaid through business profits. With this type of agreement, an SBA owner will hand over a percentage of profits from the business to repay the loan. The key advantage of alternative lenders is that they typically don’t use the same criteria as big banks to determine the creditworthiness of prospective borrowers. This is beneficial for small business owners who have had trouble getting the financing they need from banks.
Big banks are still an option
Small business owners typically borrow over $130,000 dollars from major financial institutions, according to the Small Business Administration, but loans may range from several thousand dollars to half a million dollars. Loan options include lines of credit and bank loans. A line of credit is a form of loan that may be reused. You may draw on the line of credit, and the interest you pay will depend on how much you’ve drawn. You may pay down the line of credit and then draw on it again. There will be a limit on how much you may borrow. You will need to pay applicable interest plus minimum payments monthly.
With a bank loan, you’ll receive a lump sum amount and need to pay it back, with interest, by a certain date. These loans may not be so simple to access. A lot of small business owners get turned down. When you apply, you’ll need to supply the major financial institution with plenty of data, and your credit rating will factor in. With either form of loan from a big bank, you’ll need to shop around for the lowest interest rate and the most ethical loan terms and conditions.
Investors also pump money into small businesses
One other option to consider is inviting investors to pump money into your small business. In exchange, you might offer a chunk of equity in your company or a percentage of future sales. Of course, no small business owner wants to give up equity or profits, but investors do have the capacity to breathe new life into small businesses by bringing in essential capital. Some SBA entrepreneurs seek out angel investors. These investors put money into companies that have potential. A typical angel investor might be a family member or close friend, so look around your inner circle and see if there are people who believe in you, who are willing to get onboard as angel investors.
There are many ways to borrow. Every SBA is different, so consider all the options. Only then can you decide what is best for your small business.
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