Business Credit
3 business scenarios that need money to make money
You're not the new business on the block anymore, but you might still need help. Securing financing for your company typically isn't a one-time deal. Most businesses need funding at multiple stages in their growth. For mid-tier businesses that have a few years of experience under their belts but are still gaining traction, extra capital can make the difference between slow, incremental progress and swift success.
But where do you begin? You're not a startup trying to prove your worth, but you don't have a long history of steady profits (yet!), either. Fortunately, there are still plenty of financing options out there.
Here are four of the best solutions to consider as a mid-tier business:
A line of credit can be helpful for mid-level businesses with either short-term or recurring financial needs.
With a line of credit, you get access to a set amount of money - anywhere from $5,000 to $1 million, depending on the lender - that you can use on an ongoing basis. If, for example, you're waiting on accounts receivable but need to issue payroll, you can dip into your line of credit to pay your employees on time.
Similar to a credit card, you don't make payments or accrue interest on a line of credit until you use your funds, and you can usually access your funds continually as long as you pay off your balance. It's important to stay within your spending limit and make payments on time, though - doing so could help improve your business credit score, and if you don't, your interest rate could increase dramatically.
A business credit card lets you borrow money on an ongoing basis as well. You have a certain amount of credit available to you, and you can use some or all of it depending on your needs.
If, for example, you have $30,000 and use $20,000 to renovate your warehouse, you'll have access to the full $30,000 again once you pay back the $20,000 (plus interest, if applicable).
The average APR for business credit cards is 15.37%*, but you also have to take into account other potential fees, such as late payment penalties. The minimum monthly payment usually works out to 1-3% of your credit card balance. Keep in mind, though, that only paying the minimum will cause you to rack up interest and accumulate more debt.
If you pay off your balance in full each month, not only will you save money on interest, but you could also build business credit. And the stronger your business credit score, the more likely you are to get approved for other types of financing - like bank loans - in the future.
SBA loans are a great option for businesses with long-term financial investments, like a building purchase. Lending amounts range from $25,000 to $5 million, with terms up to 25 years. These loans are backed by the SBA, but the funds come from participating lenders, which means the application and acceptance process is notoriously tough.
To apply, you need to provide a business plan, several years worth of tax returns and bank statements, profit and loss statements, and more. Once you submit your application, you usually have to wait a few months before you receive a response - even if that response is a decline.
If you can afford to wait for financing, an SBA loan can be a great option because of its lower interest rates, which average around 6%*. But if you need money quicker - to purchase a second business, for example - waiting for approval might interfere with your plans.
If you don't want to go the traditional bank route, there are plenty of alternative online lenders that make financing easier and more accessible to growing companies.
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