There are lots of financing options for business owners. It not just about “getting a business loan” understanding the different finance options available to business owners will help you to determine what option is best for you and your business.
Unsecured Business Loan
An unsecured business loan does not require any security but relies heavily on the borrower’s credit history and their business’s financial stability. Unsecured business loans are usually considered a higher risk to lenders. This means the loan amount and loan term are often lower and you will receive higher interest rates.
Secured Business Loan
A secured business loan is a credit agreement that uses asset/s as collateral against the loan. It’s usually of equal or greater value than the loan itself. This is considered a lower risk to the lender as they have security against the loan as a guarantee.
Equipment finance is when a lender provides finance by using business equipment/machinery as security. The interest rate can be lower with this type of finance option as it is considered a low risk to the lender.
Line of credit/ Trade credit
A line of credit offers a convenient and flexible source of funds when you need it instead of receiving a once off loan. It works a lot like a credit card or overdraft account in that way. It’s a great way to have some extra cash flow to prepare for quiet periods.
Invoice factoring is when your business needs assistance with paying an invoice. The invoice is outsourced to a third party (factoring company) who takes responsibility for filling the invoice. With this type of finance, you receive the majority of the invoice amount up-front then the remaining when the client pays the invoice to the third party.
An overdraft is an extension of credit that is given when your account reaches zero. There will be an overdraft limit. Credit Cards work in a similar way in that you have a line of credit to use when you need it with a limit.
All of these finance options fit a purpose for your business and using them in the right way can be beneficial to running your business.