Small Business Financing Options

  • Business line of credit

    A business line of credit is flexible funding that gives you easy access to cash when you need it most. Unlike a term loan, it does not specify the exact amount of financing or term on the financing. Rather, it gives you the flexibility to use as much or as little financing as you need (up to your credit line) for as long or as little as you need. Thus, if you only need to close a 1 week gap in cash flow, to cover payroll or purchase supplies, for instance, you only pay for the one week of financing you use.

    A business line of credit is similar to a personal lines of credit (such as a credit card or home equity line of credit) in that you have access to a certain amount of financing (e.g. $30,000) but you don’t make payments or incur any interest until you access the funds. Business Lines of credit can be either unsecured or secured (typically by inventory or receivables) and are often referred to as “revolving,”. This means you can tap into them over and over again, as needed. For instance, if you have a $30,000 line of credit and take out $5,000, you still have access to the remaining $25,000. If you pay that $5,000 back down to $0, you still have access to the entire $30,000 without having to reapply.

     

  • Invoice Financing

    Invoice financing is a financial transaction that allows a small business to access capital without taking on debt. This is how it works, a business has an invoices for $10,000 due in 60 days. Rather than wait the 60 days, the business  “sells” its accounts receivable (i.e., the invoices) to a third party (called a factor) for a fee. A Business will often times factor its receivables to meet its immediate working capital needs, whether it be covering payroll, buying materials or purchasing inventory. 

    Rates and fees: When looking for a factoring company, look for one with simple, clear and transparent pricing. Avoid anything you don’t understand, especially if the company is not willing to take the time to help you understand it. Be careful if their pricing is not on their website. Some companies may offer “teaser” rates. In that case, you’ll want to understand the terms clearly. Is the rate for the first week, the first invoice, other? Is it a weekly, monthly, or annual rate? All of these are clues as to whether you’re getting a fair deal or not. Be cautious if you feel like you’re getting a really good deal. It is quite possible that the factor could be making up the seemingly good rates via hidden fees elsewhere.

    Penalties: Do take the time to understand the potential penalties and when they apply. Some business owners are in such a hurry to get the funding, that they don’t take the time to read the terms carefully. Above all, you’ll want to feel that the penalties are fair and proportionate. If not, keep looking for another provider. Pretty soon, you’ll get a good sense for what standard terms look like.

    Minimums and Contracts: You’ll want to avoid long-term contracts if you can. Many will have you sign a contract that locks you in for years and come with large penalties for cancellation.

    Notification vs. Non-Notification: Most factoring companies work on a “notification” basis. This means that they will inform your customers when you are selling their invoices, and require that the funds be routed to them instead. If you would rather maintain sole discretion of communications with your customers, you’ll want to look for a company that works on a “non-notification basis”.

    Advance: The advance is the amount of the invoice face value that you receive up-front, and usually expressed as a percent . Only you are very large, have excellent credit, and in an industry were factoring is typically, you should expect to receive 70-85% of the face value of the invoice in most situations.

    Read our in depth guide to factoring receivables learn more invoice financing and how to pick a provider that will serve you well.

  • Equipment Financing

    Equipment loans are a type of asset based lending that allows you to borrow a certain amount for the purchase or acquisition of business equipment. In this case, the equipment serves as the physical collateral on which the lender is making the loan.

    If you need specialized business equipment, equipment financing could be answer for you. Equipment financing lets you finance the purchase of business equipment, so you can pay it off over time rather than buying it in a lump sum transaction. How much you can borrow will depend on the type of equipment and the condition of the equipment you’re looking to acquire.

    Before looking into an equipment loan, consider where you would rather lease or own the equipment outright. The advantage of leasing is that you can upgrade more frequently. The advantage of owing is that the equipment eventually becomes an asset of the company as you pay down the loan. Thus, your overall cost basis of production may end up being substantially lower by owning than by leasing. This is not always the case. In industries where technology advances rapidly, it may not necessary pay to own.

    A broad variety of equipment may qualify for purchasing via an equipment loan. Vehicles, communication equipment, new, used, construction and manufacturing equipment may all qualify for different terms of equipment financing.

    However, you don’t always need equipment financing if you want to purchase equipment. Sometimes, you just need an advance on revenue you’ve already earned but are waiting to collect on. If that’s the case, then invoice financing may be a better, lower cost option for you. It doesn’t require you to sign up to any long-term financing contracts, so you can better control your financing costs and put your own cash to work instead of incurring unnecessary interest charges.

  • Invoice Financing

    Invoice financing is a financial transaction that allows a small business to access capital without taking on debt. This is how it works, a business has an invoices for $10,000 due in 60 days. Rather than wait the 60 days, the business  “sells” its accounts receivable (i.e., the invoices) to a third party (called a factor) for a fee. A Business will often times factor its receivables to meet its immediate working capital needs, whether it be covering payroll, buying materials or purchasing inventory. 

    Rates and fees: When looking for a factoring company, look for one with simple, clear and transparent pricing. Avoid anything you don’t understand, especially if the company is not willing to take the time to help you understand it. Be careful if their pricing is not on their website. Some companies may offer “teaser” rates. In that case, you’ll want to understand the terms clearly. Is the rate for the first week, the first invoice, other? Is it a weekly, monthly, or annual rate? All of these are clues as to whether you’re getting a fair deal or not. Be cautious if you feel like you’re getting a really good deal. It is quite possible that the factor could be making up the seemingly good rates via hidden fees elsewhere.

    Penalties: Do take the time to understand the potential penalties and when they apply. Some business owners are in such a hurry to get the funding, that they don’t take the time to read the terms carefully. Above all, you’ll want to feel that the penalties are fair and proportionate. If not, keep looking for another provider. Pretty soon, you’ll get a good sense for what standard terms look like.

    Minimums and Contracts: You’ll want to avoid long-term contracts if you can. Many will have you sign a contract that locks you in for years and come with large penalties for cancellation.

    Notification vs. Non-Notification: Most factoring companies work on a “notification” basis. This means that they will inform your customers when you are selling their invoices, and require that the funds be routed to them instead. If you would rather maintain sole discretion of communications with your customers, you’ll want to look for a company that works on a “non-notification basis”.

    Advance: The advance is the amount of the invoice face value that you receive up-front, and usually expressed as a percent . Only you are very large, have excellent credit, and in an industry were factoring is typically, you should expect to receive 70-85% of the face value of the invoice in most situations.

    Read our in depth guide to factoring receivables learn more invoice financing and how to pick a provider that will serve you well.

  • Merchant Cash Advances

    Merchant Cash Advances is a type of loan that is repaid using the expect cash-flow from a merchant’s credit card and debit card transactions. This is a good fit for companies like restaurants, stores and other B2C establishments that have that receive a significant portion of their revenue through debit or credit cards.

    However, a Merchant Cash Advance is not a good solution for B2B companies which get paid primarily via check, or electronically. These companies are better suited for a term loan, or, if they have invoices with terms of Net15, Net30 or Net60, they can can receive an advance on these invoices and avoid debt all-together.

  • Invoice Financing

    Invoice financing is a financial transaction that allows a small business to access capital without taking on debt. This is how it works, a business has an invoices for $10,000 due in 60 days. Rather than wait the 60 days, the business  “sells” its accounts receivable (i.e., the invoices) to a third party (called a factor) for a fee. A Business will often times factor its receivables to meet its immediate working capital needs, whether it be covering payroll, buying materials or purchasing inventory. 

    Rates and fees: When looking for a factoring company, look for one with simple, clear and transparent pricing. Avoid anything you don’t understand, especially if the company is not willing to take the time to help you understand it. Be careful if their pricing is not on their website. Some companies may offer “teaser” rates. In that case, you’ll want to understand the terms clearly. Is the rate for the first week, the first invoice, other? Is it a weekly, monthly, or annual rate? All of these are clues as to whether you’re getting a fair deal or not. Be cautious if you feel like you’re getting a really good deal. It is quite possible that the factor could be making up the seemingly good rates via hidden fees elsewhere.

    Penalties: Do take the time to understand the potential penalties and when they apply. Some business owners are in such a hurry to get the funding, that they don’t take the time to read the terms carefully. Above all, you’ll want to feel that the penalties are fair and proportionate. If not, keep looking for another provider. Pretty soon, you’ll get a good sense for what standard terms look like.

    Minimums and Contracts: You’ll want to avoid long-term contracts if you can. Many will have you sign a contract that locks you in for years and come with large penalties for cancellation.

    Notification vs. Non-Notification: Most factoring companies work on a “notification” basis. This means that they will inform your customers when you are selling their invoices, and require that the funds be routed to them instead. If you would rather maintain sole discretion of communications with your customers, you’ll want to look for a company that works on a “non-notification basis”.

    Advance: The advance is the amount of the invoice face value that you receive up-front, and usually expressed as a percent . Only you are very large, have excellent credit, and in an industry were factoring is typically, you should expect to receive 70-85% of the face value of the invoice in most situations.

    Read our in depth guide to factoring receivables learn more invoice financing and how to pick a provider that will serve you well.

  • SBA Loans

    The SBA does not make direct loans to small businesses. Instead, it sets guidelines for loans, which are then made by its partners (lenders, community development organizations, and microlending institutions), for which the SBA provides a guarantee. When a business applies for an SBA loan, it is in reality applying for a commercial loan, structured in accordance to the SBA’s requirements and with an SBA guaranty. However, SBA-guaranteed loans may not be made to a small business if the borrower has access to other financing on reasonable terms.

    The SBA provides a useful loan application checklist on its site. The list of requirement includes an SBA Loan Application, Personal Background and Financial Statement, Business Financial Statements, Profit and Loss (P&L) Statement, 2 year of Projected Financial Statements, a statement of Ownership and Affiliations, Business Certificate/License, Loan Application History, Personal and Business Income Tax Returns for the last three years, Résumés, Business Overview and History, and a Business Lease.

    If all these requirements feel daunting or excessive to you, you’re not alone. Many small business start researching the SBA loan program only to be disappointed by the availability, timing and requirements for an SBA loan. If you’re customers are other businesses, you may decide a BlueVine advance on your invoices may suite your needs without all the hoops and requirements of an SBA loan.