How small businesses finance growth

December 9, 2017

Growth is a great problem to have, but it most certainly can be a problem. For example, your business might be ready to grow, but you don’t have the cash on hand to hire more staff, upgrade your equipment, extend your hours, or do whatever will keep you on that growth trajectory. When you’re faced with growth you need capital to sustain it—financing is the obvious answer. Change made.

These days, there are plenty of options for a business that needs financing. The tricky part is figuring out which type of loan is best for your business. Here are seven common financing options you should consider:

  1. Term loans. A term loan is a traditional bank loan. Much like a mortgage, if approved, the bank will give you a repayment period, an interest rate, and a monthly payment. In most cases, getting a loan from a bank will be one of your cheaper options, but it can also be a slow and paperwork-intensive process, and you’ll need to have good credit. Some online lenders also offer term loans, but make sure you check the fine print. Often, you pay for the convenience of getting your cash quickly with a very high interest rate.
  2. SBA loans. An SBA loan is a loan made by a bank that’s partially guaranteed by the Small Business Administration. That guarantee means banks can charge very low interest rates. Repayment terms also tend to be easier for these loans. However, they do generally take at least a few weeks to process, so if you need cash immediately, this type of loan won’t work for you.
  3. Lines of credit. A line of credit is one of the most flexible options for small businesses. Once approved by a bank or online lender, you have the option to draw up to the maximum limit set. You pay interest on whatever you draw. Typically, a bank will review your financials every year in order to renew the line of credit. Much like a term loan, going through a traditional bank will take longer and have stricter requirements but cost less, while an online lender will be more likely to lend and lend quickly, but you may end up paying for that privilege.
  4. Business credit cards. For some businesses, a credit card can work like a line of credit, but with even more flexibility. You’ll need to prove that your business is creditworthy, but there’s less paperwork required for a credit card than for a line of credit. This also makes the process faster. Of course, just like with your personal credit card, using it responsibly will help you build a sound credit history, but if you’re not careful, you can rack up a lot of debt fast.
  5. Equipment financing. An equipment loan is a loan provided by a bank or other lender that’s specifically targeted to allow you to buy new equipment crucial to your operations. With a loan like this, the equipment itself typically serves as collateral, so you’re able to borrow a significant portion of the cost of the purchase. And of course, as with a mortgage or a car loan, once you’ve paid off your loan, you own the equipment.
  6. Equity financing. Equity financing means selling shares of your company. You can either sell to individuals (known as ‘angel investors’) or to venture capital firms, investment banks, or other companies that invest in startups and small businesses. In order to invest in a private company, individuals typically must be accredited investors, meaning they have to meet certain minimums for income or net worth. If done right, equity financing can be a great way to get not just cash but outside expertise for your business. But because you’re giving up partial control of your business, you’ll want to make sure you’re very comfortable with anyone you take on as an investor.
  7. Cash advances. One of the fastest ways to get cash is through a cash advance. This is essentially a loan made against future sales. For example, if you’re a Clover merchant, you can get an advance based on your average credit card sales. Repayment is automatic, and it’s also based on sales, so you’re not stuck with a huge loan payment in a slow week.

Don’t let a lack of cash keep your business from growing. Whatever your business needs, there are plenty of ways to get financing that will help you meet your goals.