A business line of credit offers a flexible way to borrow money on an as-needed basis. If you don’t know the exact amount of money your business needs for a project upfront, or if you’re looking for a standing source of capital, a business line of credit might be worth considering.
8 Small Business Financing Options: Get The Funding You Need
Business loans from traditional financial institutions, like banks and credit unions, remain a popular way to borrow money. For well-qualified borrowers, the interest rates with traditional business bank loans tend to be a more affordable option.
However, it can be tough for some businesses to qualify for bank loans—especially for new startups or those without established business credit. Even bad personal credit scores could present an obstacle when applying for this type of business funding.
Pros and Cons of Bank Loans
Choosing the right funding for your business
If you want to expand your startup into a bustling corporation, an angel investor might be just what you need. But if you just need to purchase a couple of industrial mixers, an angel investor is overkill―and a line of credit might be a better choice.
You probably shouldn’t try for a merchant cash advance if you need over a million dollars—think a term loan instead. But if you just want to cover the cost of occasional office supplies, a credit card or your personal funding would work far better than an SBA loan.
If you’re starting a brand-new business, personal funding or loans from family and friends will probably be some of your best options. But if you’ve been in business for years and have a good credit score, you’ll be better off with an SBA loan.
If you need cash now, then you don’t have time to hunt for an angel investor or apply for a grant; instead, you’ll probably want a line of credit or a merchant cash advance. But if you have enough foresight, then angel investors and grants are a great way to go.
Crowdfunding is an out-of-the-box way to raise cash for your business goals. Several crowdfunding options include: debt crowdfunding that you repay; equity crowdfunding where you seek investors; reward crowdfunding that offers benefits to donors; and donation-based crowdfunding.
Each type of crowdfunding has its benefits and drawbacks to consider. With donation crowdfunding, for example, you don’t have to repay the funds your business receives nor share equity in your company in exchange for investments. But getting the word out and getting others excited about donating to your business goals can be challenging.
Pros and Cons of Crowdfunding
Researching the different types of business loans and other funding options puts you in a better position when you need to access business capital. From there, you can take the time to review the steps you need to take to qualify for a business loan before you start filling out applications.
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Michelle Lambright Black, Founder of CreditWriter.com and HerCreditMatters.com, is a leading credit expert and personal finance writer with nearly two decades of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, and the intersection of credit and financing. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).
Jordan Tarver is the assistant editor for loans at Forbes Advisor. Before joining Forbes Advisor, Jordan was an editor and writer for multiple finance sites, focusing on loans, credit cards and bank accounts. His goal is to create actionable content that enables people to make sound personal financial decisions. When he is not working on personal finance content, Jordan is a self-help author and world traveler who helps people experience the world and discover themselves.