You’ve done it, you’ve achieved the American dream – you own your own business. But now the hard parts come into play – developing a solid business plan, handling sales and marketing, and then facing the dreaded finance problem. Where do you start? It’s important to take a look at the various options available to determine which best suits your type of business and the situation you’re facing. And better yet, we’ll tell you how you can give yourself a head start in preparation before seeing your finance lenders.
A/R based loans
In other words: accounts receivables financing. This is a financing arrangement where you can use your receivables as collateral. Your company will receive an amount that is equal to a reduced value of the qualified receivables pledged. Advanced technological methods are now available that can easily transfer your accounting information to the bank for quick approval.
Best for: short-term cash flow needs.
In other words: a loan specifically intended for business purposes. Debt is created and must be repaid with added interest according to the loan’s terms and conditions. This borrowed capital can be applied toward expenses that you are unable to pay such as salaries, office supplies, or inventory. You must have a clear outline of how this money will be spent.
Best for: a company that has a good history and a less risky position in the market. When you need capital to finance a specific business project.
In other words: a transaction in which you can sell your accounts receivables, or invoices, to a “factor.” This factor is a third party commercial financial company that you can receive cash from. Typically, it’s available to you more quickly than waiting for a customer payment and the advance rate can range from 80% to 95%, depending on the industry. Technically factoring is not a loan because there is no debt assumed, but the funds are unrestricted and allow you to operate and grow your business with cash in-hand.
Best for: when you need more flexibility than a traditional bank loan provides. When you need cash flow fast, factors get you cash in advance for selling your invoices sometimes even within a 24 hour period.
In other words: a loan for businesses, financed by banks who participate in Small Business Administration financing. It may be easier to overcome the bank’s strict credit criteria because the SBA guarantees a percentage of these loans to these financial institutions that will then have more incentive to lend to small businesses. You will need collateral to secure the loan and must have your credit and financial statements reviewed in the process. A solid business plan and demonstrated ability to repay the loan is a must.
Best for: entrepreneurs who want to improve their small businesses with small business loans, and have a strong description of loan intentions, good credit, and show a demonstrated ability to repay the loan.
Regardless of which loan you choose to pursue, the tools you can use to apply are getting smarter and easier. Your personal finance record, credit history, work experience, and character can all play a role when applying for finance options. You’ll need various forms and documents to include if applying for a traditional business loan or A/R based loans. Use an easy integrative product, like CriskCo Approve, which enables you to apply for a loan in a one-click process without the effort of gathering the different reports from your system to send off to each bank. Having your own equity invested in the business can strongly work in your favor. Lenders are looking for clues that your business can pay them back, plus interest.
Q2 proved to be a productive time for our team as we were chosen to participate in the inaugural cohort of the ICBA ThinkTech Accelerator, hosted at The Venture Center. The ICBA (Independent Community Bankers…
- May 18
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