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5 Small Business Lending Options

Funding options, what they mean and what online sellers should know

When it comes to business lending, the terms are many, and they may not always be easy to understand.

Small business loans, business funding, working capital and quick cash loans, etc. When it comes to business loans, it’s hard to tell which is which and—more importantly—how do you know which is right for you?

I’m going to start out by giving you the worst answer: It depends.

Having access to the overdraft can remove some cash-flow restraints from your business. Overdraft is not there for you to use all the time, but it can become valuable

As always, finding the right lending option depends on the situation, and even within one business, the right choice can vary.

Let’s take a look at a few lending options one at a time. While there are many more types than this article covers, the terms covered below should be the most relevant for you, the online seller.

Loans

When you’re considering what type of loan you should take out, there are two things to consider: Where can I find capital, and what do I need it for?

Bank loan: Taking a bank loan is probably the first thing many business owners think of when they’re in need of capital.

While many small businesses are finding it difficult to get capital from their banks in the form of loans, an overdraft facility can turn out to be a good idea. To some, having an overdraft facility equals bad finances, but that doesn’t have to be the case.

In fact, having access to the overdraft can remove some cash-flow restraints from your business. Remember, the overdraft is not there for you to use all the time, but it can become extremely valuable in certain situations.

Some banks offer small business loans for startups, provided you have a decent business plan and a proper budget in place

Quick cash loan: These are also known as payday loans. Payday loans are known for their extremely high interest rates and for not having very favorable terms.

Taking a quick cash loan for your business is something you need to consider carefully before doing. Have you checked out all the other options? Are you sure you can pay the loan back and that the cash will benefit your business?

Small business loan: A small-business loan can vary a bit, but it usually refers to small loans for small businesses, i.e. no more than 15,000 to 20,000 pounds. Some banks offer small business loans for startups, provided you have a decent business plan and a proper budget in place. This is a good idea to have in any case, to make sure your business will be sustainable if it works out the way you hope.

For online sellers, there are now other opportunities. Several companies are starting to specialize in niche sectors of the market, providing business loans tailor made for that specific industry.

The benefit of these is that they can give you access to cash and a better understanding of your business. However, be aware that most of these loans will be short term, i.e. for no more than six months. Therefore, it’s important that you make a plan for the use of the money before taking out a loan, considering how you can maximize your profit within that period of time.

Other options

You can also get funding by thinking outside the box. For instance, you can look for business or government funding.

Governments around the world have set up programs to support startups to boost the economy

Business funding: Business funding often refers to outside funding, either in terms of investment or just plain financial help.

Gaining outside funding can be difficult in the sense that it takes a lot of work and some luck as well. You should have a very creative approach, or it will be practically impossible.

Here you should consider whether the work you put into getting the capital will be worth it, obviously depending on the amount of money you’re after.

Government funding: Governments around the world have set up programs to support startups to boost the economy. Depending on your country of residence, you will probably be able to get access to a small loan to help you start your business. However, most of these loans are for startups only and not created to help established businesses grow.

Before you make a decision, do research

Companies will happily talk to you and tell you about their lending options and products. It’s important you take your time to figure out which source of funding is right for you. The way to do that is to look around, talk to different companies and consider the different benefits in accordance with your business needs.

About the author

Camilla Gilbro
Camilla is the community manager at iwoca. Since graduating from Copenhagen Business School, with a degree in business communication, Camilla has been working to make life easier for small and medium enterprise businesses by offering advice and sharing experiences via entrepreneur magazines and websites. She loves a good chat about anything, from business plans to social media. Opinions expressed here may not be shared by The Online Seller and/or its principals.

  • Mel

    Nice overview of the different options available. It’s good for businesses to be aware and have this kind of information to make a decision best for their business.

    Mel

    http://www.unitedkapital.co.uk/



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