Many small businesses depend on financing to help them get started and achieve growth. Getting a small business loan can be a great way to see you through short-term cash-flow challenges or fund your long-term expansion plans. But when poor financial decisions are made it can be hard for a business to recover. As a small business owner you have many roles to juggle. For a start, you’re overseeing day-to-day operations while also thinking of ways to market your business, expand your client base, and stay competitive. With so many things to manage simultaneously, it can be easy to let financial matters drop to the bottom of your to-do list. But if you want your business to thrive financially, it follows that you need to commit some time to this area. This doesn’t mean you have to become a finance expert or do any special training, it just means understanding the basics of small business finance.
To help you out, we’ve covered some of the most important aspects of business finance in this paper. You’ll learn about the different kinds of loans available to small business owners, how to pick the right lender, and how to improve your business credit score. Take all of this on board and you should be in a much stronger position to make good financial decisions for your business.
Lenders and Loans
If you’re considering a small business loan, the first thing you need to do is understand your borrowing options.
The 2007 financial crisis led to a ton of new lending regulations, and most big banks are still exercising great caution in lending to small businesses. Many business owners, unable to obtain funding through the traditional routes, are turning to alternative lending channels to fund their business ventures. These include Fintech companies, crowdfunding, and other non-traditional finance options.
This doesn’t mean you should rule out securing a business loan through a traditional bank – especially if your business is well established and you have a good credit score. If, however, your business is in the very early stages and your credit rating leaves a lot to be desired, you may find yourself turned down or offered unfavorable lending terms by your local bank. It’s at this point that you might want to consider your other options, such as Fintech lenders.
Big banks tend to be quite rigid in their lending criteria, which can be frustrating for business owners who don’t fit a traditional lending profile. Fortunately, many alternative lenders will take into account a broader range of factors when making loan decisions.
This greater variety of small business lending options can be a mixed blessing for entrepreneurs, though. On the one hand, you have access to more flexible finance products with different costs, payment structures, and application criteria. On the other hand, it can be confusing working out which one is best for you and your business since there are so many variables to consider.
To help you sort through all of the options, let’s begin by looking at some of the most common loan types on offer to small business owners:
1) Business Loans – Flex and Fixed Plans
When looking for a quick solution to a short-term cash crunch, you can opt for unsecured financing options. A flex plan helps a small business overcome temporary financial constraints by receiving capital against future credit and debit card sales, without any collateral.
A Fixed plan caters to businesses such as manufacturers and wholesalers who use cheques and direct deposits rather than interact sales. This loan is for small-to-enterprise level businesses that opt for fixed payments. Alternatively, the flex plan is also a great lending alternative for those businesses that want to pay back on a daily or monthly basis, based on their credit/debit card sales.
2) Equipment Leasing
Find yourself in need of heavy machinery or manufacturing equipment for your business? Many lenders offer a one-stop shop for small businesses when it comes to equipment leasing. They look at a variety of solutions that help their customers obtain necessary equipment that is vital to their business operations.
3) Equipment Leaseback Financing
Do you own business equipment or machinery that is free and clear and want to raise working capital, business expansion and/or retire debt against it? Equipment Leaseback Financing option allows companies to leverage existing equipment as collateral to secure funding against it.
The Client is provided funds based on a fair/forced liquidation value of their equipment along with business land assets if required.
4) Investor Network
These options are meant for individuals who own equity whether it is personal or business. Each financing option differs from one another based on the preferences of our clients. This is one of the many alternative financing methods that cater to the funding requirements of small and enterprise level businesses across Canada.
5) Business Acquisition Financing
Buying a business is a great way to grow your client base, increase your productive capacity and build the value of your company. However, unless you are able to pay cash for your acquisition, you will require some kind of financing to be successful.
6) Business Startup Financing
Have a million dollar idea but don’t have the funds to back-up your start-up? This is where startup financing comes in play. Although very few vendors offer this kind of financing, this option allows new start-ups to secure funding for their business with very few requirements. Entrepreneurs can use this money for marketing, purchasing inventory, or invest in equipment.
Whether it’s a property or equipment lease, merchant cash advance, or a small business loan, it’s likely that at some point over the life of your business you’ll need access to some form of credit. Your ability to qualify for a business credit of any kind will be dependent upon your personal and business credit rating and history.