There are lots of reasons your small business may need a little extra cash. Perhaps you want to grow your business and expand, or maybe you are falling on hard times and just need a little help to get past it. At the end of the day there will come a time when you need money.
When thinking of ways to borrow money, you should start by asking yourself what you need it for, how long you will need it, and if it is a priority. Once you answer these questions, you can determine which methods you want to consider using to borrow money for your business. Here are 7 ways you can borrow money:
- Line of credit
You may already have a line of credit with a local bank. If you do not, you might want to investigate this option. It is a great short-term solution to access funds quickly and be able to pay them back as soon as you bring in the revenue. When you have unpredictable cash flow, it is good to have a line of credit with a bank in case of emergencies.
- Talk to your bank.
The best way to start is to have a conversation with your bank with which you already have a relationship. Ideally you have a great history paying back credit you’ve used in the past. If you approach them to ask for a larger loan, you will need to explain your business plan and show profit predictions. Here are a couple other ways to improve your chances of getting the loan you need:
- Personal guarantee. Instead of making the bank risk more by only putting a guarantee on your business, ask yourself if you are willing to guarantee them personally.
- Secured loan. If you own your building or other collateral, it is one of the best ways to get a loan from your bank. They see less chance of loss for themselves when you are willing to risk your own assets.
- Be your own bank.
In this case you would lend money from a personal account to a business account. It is important when doing this to have a clear paper trail to show your investment or loan to the business.
- Borrowing from family members.
Similarly, you could ask someone in your family to loan you the money directly or share ownership of the company. Again, if this is a route you choose to take is it vitally important to have clear paperwork specifying all details and expectations in place.
- SBA Loans.
While the SBA does not directly lend money to companies, they do have SBA programs through banks that help carry some of the burden for the bank. This specific loan program can be attractive to a bank as well. There are requirements for these such as good credit, personal investment into the company, and not being past due on federal debts.
- Government programs.
An example of what had been available was the Paycheck Protection Program (PPP) loan that the federal government has made due to the pandemic. This program included grant-like loans as well as debt forgiveness. Other examples of assistance include lending through the SBA EIDL program and the Employee Retention Tax Credits (ERTC). There have been state and city programs that have specific lending or forgiveness opportunities for small businesses as well.
- Equipment financing.
Maybe you own a business that requires you to buy special machinery. Banks put this into a specific category for lending against physical objects since at some point the business might sell the equipment and therefore comes with it’s own incentive.
Options to Avoid
Just because an option sounds easy, does not mean it is the best way to go. For example:
- Credit card debt.
I’m sure you have heard stories of people being successful when racking up credit card debt to finance their businesses. However, just because the interest rate on a credit card might look more appealing than a cash advance, doesn’t make it the best option. Do your research.
- Answering those emails.
Again, you may have heard the odd story about a small business borrowing from a private lender and it ending well, but that is certainly not the majority. All businesses get those emails, “We lend money to small businesses.” Don’t fall for it. They specifically prey on people that cannot borrow from banks and feel like they do not have any other choice. The costs for these loans are extremely high and will tax your cash flow.
If you need help navigating your options, contact us for a quote and learn all of the services available to help you and your small business. We can be reached at 310-534-5577 or [email protected] more information from the source of this article here: https://www.accountingweb.com/practice/clients/7-ways-small-business-owners-can-borrow-money
