Invoice Financing + 8 other Loans to solve my Business cash crunch! 

BY WM. RANDY MCKINLEY

President/ CEO "The Company Doctors"

Small business owners with less than 500 employees have several different types of business loans available to meet their short – mid or long term cash-capital needs.

At some point, nearly every small business will require some extra capital—whether to boost existing cash flow, to bring on new employees, or simply to grow the business to the next level.

Accounts Receivable/Invoice Financing may be the #1 solution if you have limited credit and you are growing.  Luckly,there are 8 other business financing options to choose from, each as unique as the business they’re funding.

Here are the 9 Different Types of Business Loans you can tap into

1. Term Loans

 Business owners who want to make investments in specific business areas

 Great for ongoing need for working capital

 Not good for emergencies or one-off situations

 You need strong credit and can afford to wait for financing - most banks work great, best rates and terms

 If your credit isn’t strong you can go to a short-term lender

Reasons for a Term loan:

 Buying real estate | acquiring another business |Investing in remodeling or renovating commercial space | planning long term expansion  

 Term loans range between $0 - $600k, 1-5 years, 7% -30%, with the higher % being w/ short term lender

Term loans work great for a Variety of business owners across different purposes

Term loans have faster processing and fewer requirements than traditional bank loans

There are 4 quality sources nationally that work well, if a short-term lender is needed

2. Business Lines of Credit

 Great for Business owners who want a cash cushion for cash flow gaps or emergencies

Not good for investing in an expansion or other long-term business goals

These lines are available for the company to draw from at any time as needed

These lines of credit can be fixed or revolving

Revolving lines are very similar to credit cards and reset after you pay your balance

Banks offer the best interest rates and the longest time between renewals

Online lenders offer shorter term lines of credit for younger businesses or owners with lower credit scores

Lines of credit are great for paying reoccurring operating expenses, covering cash flow issues whilewaiting on customers to pay,

            seasonal cash flow drought and emergencies

 Banks will offer secured and unsecured credit lines

Secured lines you usually have to put down some collateral i.e. (house, land, or other assets)

These lines are usually up to $250k, 2 year terms, 4.5%- 25%

There are 4 great online funder's nationally if your credit score is 500- 625

3. SBA Loans

 Great for Business owners with excellent credit and seeking a longterm loan

Not a good solution if you need quick capital or have a low credit score

SBA doesn’t provide business loans they partially guarantee loans from banks making them

SBA eliminates some of the risk to encourage lenders to make loans to small business owners

SBA loans are the most affordable sources of capital

The Standard SBA 7(a) loan is good option for business owners who need working capital,want to expand or acquire a business

The SBA 504/CDC loan is ideal for business owners want to finance the purchase of equipment, real estate or make upgrades to existing property

The goal of SBA loans is to help small business owners who can’t qualify with a traditional bank

SBA loans have high qualification standards, including strong business financials, solid credit history and few years in business

Overall, you can get up to $5 million, term 5- 25 years, interest rate based on Prime + or 5%-13%

Great loan option, just need to put all the pieces together and be buttoned up when presenting

There are5-6 great national optionsabove and beyond community banks

4. Equipment Financing

 Excellent for Business owners who need to purchase or lease business equipment, machinery, or vehicles

One of the most popular asset-based loans is equipment loans or equipment financing

Ideal if you’re looking for money to acquire a piece of new or used equipment

Saves operating cash – by not paying for the equipment outright (i.e. equipment lease or loan funds the purchase)

Equipment financing is available to established, new businesses and even owners with lower credit scores

The Equipment itself secures the loan and you don’t have to put up any other collateral.

Equipment loans are pretty affordable, range from 6% - 30% depending business’s age, credit and finances

You can buy or lease a range of equipment types the business uses  i.e. computers, appliances, vehicles, etc

There are 3 great options nationally you can use

5. Invoice Financing

B2B businesses that have cash flow problems stemming from unpaid invoices

B2C businesses or you do not invoice customers this is not an option

Great option is you have a cash flow problem from customers who pay at different times

This is considered an asset based loan, the unpaid invoices act as collateral for the advance

You are able to use the advance on receivable to cover payroll, rent and other operating expenses

Usually you get around 85%-90% of total invoice amount and they hold the remaining percentage

The lender will typically charge a weekly fee and once the customer pays the 10-15% you get this percentage back minus the fee

Your credit cost can range from 500-550, fees per week range from .3%-1.7%

Overall it is up to 100% of the invoice value; until the customer pays the invoice; about 3% processing fee, plus factor fee (~1%)

            each week until the invoice is paid

There are 3 Great National Choices in this category

Great simple, fast, low cost solution for short term cash flow issues and you have unpaid invoices

6. Commercial Real Estate Loans

Financing the purchase of a building, shop, office space or other commercial property

Similar to equipment financing, the property acts as collateral

Commercial loans can take on different structures depending on the lender

Banks provide these loans with longer repayment terms and Lower interest rate

Hard money lender are private lenders who work with a wider pool of borrower for these loans

Hard money lenders will offer hard money business loans or balloon loans for properties.

Hard money focuses on LTV and lend at a max of 70%

Hard money you make smaller payments for several years based on a long amortization period

Balloon loans have payment 4-7 years then pay off the loan, or renegotiate terms with the lender or refinance the debt

Commercial loans focus on LTV (Loan to Value)

Typical LTV for Commercial real estate loans is 75%-85%

The down payment of 15%-25% comes from your own funds

Hard loans are good for bad credit, easy to apply, quick to fund but it is higher risk with collateral and have higher interest rates

There are 4 top options nationally

7. Microloans

Great for a business who needs $50k or less in financing

Ideal for working capital, expansion, or start up costs

Qualifications aren’t to stringent

Micro-loans well suited for Female and minority owned businesses

There are SBA Micro-loan programs

Micro-loans work great for startups or micro business (i.e. food trucks, vendors, & freelance)

Max term of the loans are 6 years

Interest rates can be very high 9-16%

2019 average loan was $14,735 at 7.5%

If you need more than $50k not a good option

These loans you need a businesses plan, clean personal credit and be prepared to offer collateral or personal guarantee

These loans are from nonprofit lenders we know of 6 key national nonprofit funder's

These lenders focus on early stage businesses, understand entrepreneurs & local economies

8. Personal Loans for Business Use

Great for owners of startups with a good credit history

If you can qualify for a traditional business loan, then don’t do a personal loan

Personal loans are popular for startup’s

Both banks and online lenders offer personal loans

These loans are based solely on your personal finances and credit score

Typically your credit score needs to be above 650 to qualify

Personal loans are usually smaller amounts of money i.e. up to $35,000

These loans range from 5% - 36% and 3-5 years

A secondary option would be a home equity loan for business purposes

There are numerous options locally and nationally

9. Merchant Cash Advances

Ideal for Business owners who aren’t able to qualify for other types of business loans

Merchants basically grant you an advance of capital and purchases a portion of your daily credit and debit card sales

You pay back the advance with a % of your daily card sales

Great solution when business is slow, you pay back less and when business is great you pay back more

The downside is that merchant cash advances are the most expensive type of business financing

Merchant Cash advances can approach 100% or higher on the APR

If you do this type of financing you must make certain that cash flow can handle it

If you can’t qualify for any other type of business loans then this could be considered

The top 2 merchant cash loan up to $250k, paid daily, factor fee averages 1.14 -1.22

Merchant loans are a last resource where you need fast, special need solution, but expensive capital

Bottom Line

There are many different types of loans and the right one or ones for your business ultimately comes down to a number of factors & your business strategy. 

You’ll need to consider your credit, your business’s finances, sales, the length of time you’ve been operating, and your reason for the loan and how it fits into your short-term, mid-term and long term goals before narrowing down your options. 

Many times this points to Accounts Receivable/Invoice Financing because it is simple, fast, cost effective and with no piles of paperwork for a bank.

Call us at 1.866.387.5314

or

Email us at Clients@thecompanydrs.com

"If you know anyone who is struggling with cash/capital needs for their business - I encourage you share this post and have them read it before they make a desperate move without considering all their options..."