Access to capital helps small businesses succeed and grow. Whether you need to cover cash flow gaps, fund expansion plans or invest in long-term assets, it’s important to understand all your financing options. This will help you make informed decisions and select funding that aligns with your goals.
5 Financing Options to Consider
Your business may have access to several types of financing, with most options falling into five broad categories:
1. Lines of credit. This is a common form of financing because of its simplicity and flexibility. Once approved, businesses can borrow up to their credit limit whenever needed without reapplying. It can help meet periodic, temporary cash flow shortfalls. It’s often wise to establish a line of credit before you need it, so funds are readily available.
2. Term loans. These loans are issued for a specific period. They’re repaid with interest over a set number of years and are mainly used to purchase fixed assets, such as machinery, vehicles and equipment, or to support major business investments.
3. Commercial mortgages. This type of term loan is used to purchase new or existing commercial property, including retail space, industrial warehouses and office buildings.
4. Government loan programs. Small Business Administration (SBA) loan programs, including 7(a) and 504 loans, are a significant source of funding for qualifying businesses. The SBA periodically updates program rules and lending limits, so review current SBA requirements before applying. Because the SBA guarantees a portion of these loans, lenders may extend financing to businesses that otherwise wouldn’t qualify under standard underwriting criteria.
5. Equipment leases. When acquiring equipment, leasing may be a better option than purchasing it outright. This can be especially beneficial for technology that may quickly become outdated. Leasing can help preserve cash flow while allowing businesses to upgrade equipment as needs change.
Alternative Funding
Your business may also be able to access funding from less traditional sources. Examples include online lenders and specialized financing providers.
They may offer financing solutions that complement traditional lending options, including working capital loans, equipment financing and factoring. Factoring allows a business to receive cash based on outstanding customer invoices, helping improve short-term cash flow.
Moving Forward
Some financing options may offer tax advantages. Interest paid on business loans, including lines of credit, term loans, commercial mortgages and SBA loans, may be deductible, subject to various rules and limits. Payments made under qualifying equipment leases are generally deductible as a business expense.
If you’re considering borrowing or exploring alternative funding sources, contact the office for help evaluating your options, understanding the financial and tax implications and identifying financing solutions that best fit your needs.
