The businesses that survive and thrive in a competitive environment are typically the ones that are always making improvements. They hire highly-skilled employees, invest in new technology, and expand their reach – and they fund it with financing options that fit both their goals and daily operations.
Choosing the right financing option and lender can make a big difference in the future of your business. So before comparing interest rates or filling out any applications, be sure about which financing structure will help you most. Start with determining whether your business improvement will be ongoing, or a one-time investment.
If a business has seasonal, cyclical, or irregular cashflow needs, they can find great financing options in the form of a business line of credit or working capital loan. A business line of credit is a flexible, revolving loan subject to credit review and annual renewal. Like a credit card, a lender sets a credit limit usable as long as payments are made on time. Interest does accumulate on these lines of credit.
Most businesses use these funds to cover needs such as financing for operational expenses, like supplies and payroll, or for increasing inventory. But the line of credit is not designated for a specific purpose or purchase.
Small business lines of credit are typically offered as unsecured debt, which means no collateral such as real estate or inventory needs to be put up. Terms can range depending on a number of factors. For example, our BizFlex Line of Credit is unsecured up to $50,000 over a five-year draw period. Many come with a variable interest rate and range from $1,000-$100,000. For larger amounts, you may be required to secure the loan by putting a blanket lien on personal or business assets.
Working capital loans are granted to companies that have a high credit rating or are tied to a business owner's personal credit score. A working capital loan is only intended to cover expenses incurred by existing capital and human resources like rent, utilities, and payroll.
There are other “working capital” loans backed by different financing methods to help fund everyday operational costs:
When looking to make major investments in your small business, there are two financial products you should look to first: term loans and equipment loans.
Term loans are what most people think of when they think of a loan – a lump sum of money repaid over a set schedule. In business, term loans are not meant to cover day-to-day expenses, but rather large growth investments: inventory or equipment needs, expanded office space or new locations, staffing surges, starting new product lines, buying company vehicles, etc.
Term loans are structured with repayment schedules anywhere from six months to 20 years (depending on your lender) and loan amounts can range in the millions depending on creditworthiness.
While these loans are designed for more established businesses, usually with at least two years of operating history, there are plenty of small business term loans and more manageable short-term loan options. Our own BizFlex Term Loan has a maximum repayment period of five years and maximum loan amount of $50,000. Repayment often begins immediately, so calculating ROI is extremely important to making the decision on taking out a term loan.
Equipment loans are for exactly that, adding to your existing equipment inventory or upgrading and repairing old equipment. They can cover a variety of purchases such as restaurant ovens, cookware, tables and chairs, linens, catering supplies; phone systems; computer monitors, industrial equipment, specialized machinery and more. When researching an equipment loan, the most important thing to consider when looking at these loans is whether or not you’d be better off leasing the equipment.
Leasing equipment usually doesn’t require a down payment, so it can be a good option for small businesses with little capital. If a down payment is required, it is typically relatively small compared to what a traditional equipment loan down payment would look like. With a lease, you can also generally finance around 100% of the cost of the item, which is not typically the case with a loan.
Good credit is required for most equipment loans, so your best bet is likely to contact a lender or bank that prioritizes relationships with its small business customers.
If you need some guidance in finding the right lending option, or if you’re ready to discuss options with a financial professional with decades of small business experience, we’re here to help. Find your local business development manager at your nearest First Financial banking center to get one-on-one guidance tailored to your needs.
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