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The right type of credit for your business

December 10, 2017

There are a lot of different types of financing available for your small business. When you’re in need of some extra cash, you can go to a bank, an online lender, your credit card, even a rich friend. But what’s the smartest option? The answer, of course, depends on your particular needs.

Here are 5 ways to make the decision about which type of credit is right for your business:

  1. If your top priority is speed, the deciding factor will be the type of lender. Getting a loan from a bank tends to take a long time and involve a lot of paperwork. If you need cash this week, consider getting a term loan from an online lender with a simple online application—you should have the cash in a couple of days. A cash advance—through a program like Clover Capital—based on your credit card sales can also get cash into your account quickly.
  2. If you’re focused on cost, a traditional bank loan is the way to go. Get a term loan, or, if you qualify, an SBA-guaranteed loan, from a bank that charges reasonable interest rates. Banks tend to offer the best rates around, in part because they do take longer to evaluate loans (and approve fewer of them). You could also consider applying for a line of credit from a bank—that way, you’ll only pay interest on the money you actually spend.
  3. If your main need is flexibility, you’ll probably want to go with a line of credit or a business credit card. With a line of credit, you’ll apply to a bank in advance, and then the money is there for you to spend whenever you need it. A business credit card offers similar flexibility with a less-intensive application process.
  4. If you want a loan that helps build your business for the future, you may want to consider equity financing. Selling shares of your business to investors is a great way to gain some experienced advisors. Making connections with angel investors or, eventually, venture capital firms can also help you start preparing for an eventual IPO, if that’s one of your goals. Alternatively, using a credit card can help build a credit score for your business that could help you get bigger loans later; and getting equipment financing is a great way to work towards owning crucial equipment without having to pay for it all up front.
  5. If you need a manageable repayment plan, getting a cash advance is likely your best option. The amount you can borrow will be based on your average monthly credit card sales—and so will your repayment plan. If you’re a Clover customer, Clover Capital is an option. This program can advance you some cash based on your average credit card sales. Repayment is easy, and also based on sales, so you won’t get stuck with payments you can’t afford.

Whatever your priorities are for your business, there’s a type of financing that will work for you. Take the time to go through all your options and figure out what type of credit will fit your needs best.