Running a business is not a piece of cake. It needs all your sweat and blood. Research shows that 90% of startups fail in their initial stages. One of the top reasons for this failure is running out of business capital and cash flow. Don’t be scared of failure.
Failure is the opportunity to begin again more intelligently.
Henry Ford
Regardless of which industry your business is, it needs a handsome amount of money as capital and cash flow to stand out in the marketplace. By utilizing the business credit wisely an entrepreneur can move their business to the next level.
Your small business loan helps you in, adding more value to your business, managing liquidity the most important thing for any business, timely decision making to get desired financial results, it increases your creditworthiness and helps you a lot in cash emergencies.
Factors that should be considered before taking a business credit.
Identify why you need the business credit (Purpose)
Define the amount of business credit you need
Research all the accessible lines of business credits
Analyze the basic terms and conditions of small business loan
Select the best small loan provider (Lender)
Gather all the required documents
Check your all requirements
Check your FICO score and history
Make a solid business plan
Apply for a small business loan
Kinds of Business Credits
It doesn’t matter what your business industry is, every entrepreneur needs business credits at one point or another in the business life cycle. Different types of small business loans are available on the market; you have to choose the one which could be the best for your business industry and circumstances.
Here, we will discuss some of the main types of small business loans that are available to entrepreneurs.
Balloon Credits
If you don't have any clear idea on how to acquire credit for your business then, it will be the best choice for you to go for a balloon business credit. Unlike other traditional business loans, balloon business credits are types of loans that are not fully amortized over the time period. You have to make a final large payment at the end of the loan period, that's why it is called balloon credit. This is a great credit option for short-term borrowers. The interest rates are relatively very low. You can use this for business financing, construction loans, and home purchase loans. Although, you are paying a very small amount as fixed monthly installments usually only interest. The best thing about it, in the end, you have the option to refinance it.
Interim Advances
Interim advances are just like revolving business credits. Where you take credit when you need it and pay it back soon. It is a very fast, flexible and best unsecured business loan option for entrepreneurs with bad credit scores. It is very straightforward and carries high-interest rates. In this type of advance, the potential lender concerns more about your reimbursement capacity. This type of advance is mostly utilized to make regular installments.
Personal Credit
If you are a startup business owner and need credit for your business then, this will be the best choice for you. As the name indicates, it is specially designed for individual credits. This is the type of unsecured loan and best alternative to the small business loan for a startup. Although you get funding as a personal loan, you can use it for your business purposes. You can get your personal credit loan with a maximum limit of 40,000 USD. To qualify for a personal loan, your personal credit history should be very strong, a FICO score of more than 700 is required otherwise your loan application will be rejected.
Purchase Request Financing
The purchase request financing is also known as purchase order (PO) financing. It's a great option for all types of businesses, but more beneficial to a new startup company, wholesalers, and distributors. In this type of financing, you approach purchase order lending companies with a PO issued by your customer. When your PO loan is approved, the lender will send the money directly to your supplier of the product; in the meantime, your supplier will send the product to your customer. After that, you send the invoice to your customer. The customer will send the money to the lender directly. After deducting the fees, the lender will pay the remaining balance to you. Purchase request financing is the most popular and effective for business startup owners with bad credit who need very quick financing for their purchase orders. No high credit scores are required; your lender is more concerned about the creditworthiness of your supplier.
Merchant Cash Advance
This becomes the foundation for all online business lines of credits. In a situation where you need a business advance on an urgent basis and don't see any other sources, it could be the best possible option for you. If you are disappointed by other customary sources then this helps you a lot. This is the best among all other business credit types. This is a type of short-term unsecured loan with high-interest rates. In this type of credit, you actually sell your future profits and get an instant cash advance from the merchant in return. It is an awful business funding option that requires no collateral, no credit scores, and is very fast and flexible