2 business people making a dealIf you need to fund your small business, then you are in luck because brick and mortar financial establishments are not your only option.  The choices for business loans are many – in fact, there are so many options, the process can be a bit overwhelming.

In 1995, small business loans made up almost 50% of all bank loans and according to a Harvard Business School study, that figure dropped by a third within 15 years.

With the benefit of today’s technology, online lenders can analyze such data as credit score and business cash flow, and in turn provide easier and quicker access to capital for your business as compared to traditional banks.  It is important to keep in mind, that getting a loan online has it benefits – like convenience and speed, it also has its downfalls as you will be paying for that convenience and speed by spending more on closing costs, etc. Learning about loans and all available options is important. Everyone will not qualify for loans from online lenders, as start-up businesses will not likely qualify. However, if your business is up and running for at least 12 months, online loan may be an option for you.

Let’s begin by taking a closer look at some loan options for your business

small business loan applicationTerm loans

This is when a determined amount of money is deposited into your bank account, and you will repay the loan (plus interest) over a fixed period of time.  This is a great choice for larger loans, as they can be paid off over a longer period of time.

Credit lines

A line of credit offers more flexibility than other types of loan options because you use only the monies you need at any given time and only pay interest on the monies borrowed.  Similar to a credit card – borrowers have access to monies that can be used to improve their business only when it is needed.  Repayment or accrued interest will not begin until the line of credit is tapped into.  The benefit to this type of loan is that you will not have to reapply, because if the loan is repaid in full (plus interest), the line of credit resets to the original value.  This is a great option for small businesses that want to have a little padding on their cash flow.

Invoice factoring

If you need cash immediately, borrowing against unpaid customer invoices may be the right option for you.  This will aid in providing immediate cash flow while you wait for customer to pay their bills.  This option is only available for businesses that sell services and goods to other business – therefore, they have invoice.  Usually, 85% of the invoice value is advanced and the financing company will hold back 15%.  Once your customer pays their bills, the 15% will be given back to you (minus fees – which are usually 3% for processing and 1% for each week that it takes for customers to pay the original invoice). In comparison to other types of business loans, this type is one of the most costly ways to fund your business, as you may end up losing a portion of the original invoice toward fees and interest rates.

Equipment Financing (Asset based loan)

Purchasing equipment is a large expense for any small business and many new companies don’t have cash in hand to make these large purchases.  In this case, lenders care more about a particular piece of equipment than the number on your credit score.  The benefit of this financial choice is that it will only last for the expected life of the equipment, which means that you will not be paying for something that is out-of-date.  The downside to this loan choice is that you will be paying more for a particular piece of equipment.

Merchant Cash Advances

If you need cash quickly, this may be the option for you and your business as this loan approval can happen in as little as 24 hours.  The advantage is that a business owner will not be punished for experiencing slow revenue periods, as the lender only takes a percentage of the credit card sales; however, this also means that on lucrative months, the lender will be taking more from your account.