Expanding Your Small Business: A Closer Look At Business Funding Options
Are you hoping to expand your small business but will need some extra funding in order to reach this goal? If so, you should know that there are three main options available for your business funding needs. These three options are traditional business loans, business credit cards, and merchant cash advances. Below you can learn more about the pros and cons that each of these options has to offer so that you can decide which option is right for you.
Traditional Business Loans
- Access To Larger Loan Amounts - If you require access to a large amount of business capital, a traditional business loan will likely be your best option. This is because as long as you meet the requirements to qualify, this business funding option offers access to the largest loan amounts.
- Helps Build Credit - Traditional business loans are considered installment loans and are therefore reported to all major credit bureaus. If you are hoping to improve your business credit, utilizing this type of loan could help.
- Lower Interest Rates Than Credit Cards - While you will still need to pay interest charges on a traditional business loan, these loans typically offer much lower rates than are offered by credit cards. This can save you money over the life of your loan.
- Requires Good Credit To Qualify - If your credit is less than perfect, it can be difficult to qualify for a traditional business loan.
- Long-Term Commitment - Traditional business loans typically offer the longest loan term. This means that you will need to commit to making monthly loan payments for a significant amount of time.
Business Credit Cards
- Quick Access To Cash - If you already have a business credit card, you could get access to the cash you need immediately. If you do not already have a business credit card, you can often be approved in a matter of minutes and receive your card in the mail in approximately one week.
- No Need For Separate Application - If you have a business credit card, there is no need to fill out a separate loan application in order to gain access to the business funding you need. Simply use the card as needed to purchase inventory, pay bills, or cover other business expenses.
- High-Interest Rates - Credit cards often have the highest interest rates of all business funding options. This can greatly increase your cost of borrowing money.
- Limited Funds - Business credit cards will come with a credit limit that may not be sufficient to cover the costs of expanding your small business.
Merchant Cash Advances
- No Credit Needed To Qualify - Merchant cash advances do not require a credit check for you to qualify. This is because this business funding option relies on your past credit card sales to determine if you qualify for funding.
- Flat Fee Rather Than Interest - Rather than paying interest charges over the whole term of your loan, a merchant cash advance will allow you to pay a one-time flat fee.
- Only Make Loan Payments When You Have Sales - Loan payments are taken from future credit card sales rather than you making a monthly loan payment. This can make repaying your loan easier and more convenient.
- Loan Limit Based On Past Sales - If you have not had many credit card sales in the recent past, you may find that you do not qualify for a large enough loan to meet your needs.
- May Not Assist In Building Credit - Since merchant advances allow you to borrow against your future sales rather than providing you with an installment loan, this type of business funding is not typically reported to credit bureaus unless you default on your agreement.