Currently, small business owners have many alternatives to getting a working capital than before. Despite the fact the increased number of alternative is abundant; it can be overwhelming to know which one of the alternatives is suitable for your business.
Note that SBA loan is suitable for long-term working capital investment and its best for entrepreneurs who have been in operation for not less than two years. For you to get this type of a working capital loan, you must have a strong credit history. The best part of it is that SBA loan is one of the cheapest sources of working capital. It is good to remember that the Small Business Administration (SBA) itself does not give out loans; rather it guarantees loans that are secured by traditional banks. The guarantee helps in lowering the risk of a loan for financial institutions which lets them give promising terms to borrowers.
Short term online loans
Short term loan is secured to cater for small business expenses such as inventory and supplies. It is suitable for business owners who have been in business for at least one year. For you to qualify for this kind of a loan, your business must be able to produce more than 50000 US dollars in annual profits and must have a credit score of above 500.
In case you fail to meet the qualification requirements for an SBA loan, getting a short-term loan might be the best alternative since they are easier to qualify. Despite the fact that they are quick and convenient, they also have their drawbacks. Their annual interest rates range between 20-80 percent. Even though this seems a bit high, remember that these are short-term loans and therefore the debt must be repaid in three months to three years. In the long run, you will realize that your total out-of-pocket cost will be less than that of an SBA loan.
This is meant to cover business expenditures that arise while you are waiting to receive payments from your clients. This type of working capital loan is suitable for companies with cash flow gaps due to inconsistent invoice payments.
In most cases, your business will collapse due to cash flow problems. Note that invoice factoring is the best solutions for such issues. Instead of waiting for an extended period to receive payments after selling goods or services, invoice factoring will allow you get paid instantly.
Crowdfunding is meant for business expansion, and it is suitable for expanding new business from an early stage. Note that crowdfunding websites will let you borrow small amounts of working capital for your startup from well-established investors. In return for investor contributions, you must give out some reward, mostly a free service or product from your business to show gratitude.
Crowdfunding is the best alternative since t opens up access to working capital for startups. Nevertheless, crowdfunding is not for faint hearted, and it perfectly works for startups that have a consumer product with a visual market appeal. On top of that, the majority of crowdfunding platforms are all- or-nothing. This is to imply that if you fail to meet your funding goal, you will never receive the funds.