Small Business Short on Cash? Here Are Some Options.
Small businesses can run into several situations where they are short of funds. Perhaps you’ve succeeded beyond your wildest dreams, but now you have thousands of orders and no cash on hand to buy enough raw materials. Maybe it’s your business slow season but the tax bill is due. Possibly your expensive equipment suddenly needs replacing. No matter the reason, there is more than one way to make sure you’ve got the cash to keep your business growing.
Cash Advance
A merchant cash advance is one way to very quickly get funds. If your business runs primarily off credit cards or has a large credit card transaction rate, you may be eligible for this type of loan. In this scenario, a lender pays you a lump sum and you pay the lender back not through monthly payments but through a portion of each of your credit card sales. This can be a great option for businesses that don’t have an established or a positive credit rating and when you need an unsecured loan. It’s also helpful for seasonal businesses because repayment isn’t set monthly payments. The business pays more when it has many credit card transactions and less when there are fewer.
Invoice Financing
Invoice financing is a similar type of loan for businesses that work with other businesses through invoicing instead of point-of-sale transactions. Loan amounts are based on the amount of the open invoices your company has and then those invoices are paid to the lender. Like a merchant cash advance, your credit is not the primary concern, but this lender will look at the credit-worthiness of the people who owe you money since they are relying on them to get paid.
Small Business Loan
A small business loan is another way to get a cash injection for your business. Like traditional loans, this will usually include collateral if you want to keep the interest rate down. It can also take longer to receive your funds. On the other hand, if you work through the US Small Business Administration you will know you are getting the best rate without hidden fees. The SBA will also work with your business through the life of the loan to make sure your business is a success.
Which of these options is best for your business will depend on the type of payments you receive, how quickly you need the money, and what type of repayment fits your business model best. Be aware that the unsecured loans of merchant cash advance and invoice financing can come with high interest rates, but it may be worth it if you need cash fast and are building your credit.
