Business Capital Loans: Know Your Options
All businesses, in order to grow and to expand, need external financing. Usually, business firms turn to loans. There are different types of financing options depending on your requirements and eligibility. Before you decide which business capital loan, it is essential that you know how they work along with the costs associated with getting one.
Merchant Cash Advance
Merchant cash advance is a widely popular financing option. With MCAs, you get to have a lump sum upfront. You can then have the funds that you can use for your business. It is different from other types of loans in the sense that the payment that you make is on MCA. What they do is they withhold a certain percentage in your debit/card sales daily.
Merchant cash advance is best for businesses that have consistent and good credit card sales. If you can handle repayments frequently, this is a good option. It is also a good choice if you are having a hard time finding a financing option.
What are the Requirements?
In availing a merchant cash advance, you have to check if you qualify. Here are the requirements:
- You need to have at least a minimum credit score of 500. Depending on the program, there are some that may require a 525 score.
- They also look at the time the business is in operation. The minimum is 6 months.
Short-Term or Long-Term Loans
Another option is to get either a short-term or a long-term loan. Let’s look at short-term loans. One of the main reasons why a lot of people prefer to avail short-term loans is because it has a really quick approval time. There is no collateral needed and if there will be background checks, it won’t be too difficult.
If you are in need of quick or instant cash you can use for your business, a short-term loan may be the best option for you. The only downside is that when it comes to the interest rate, you can expect that it has a higher annual percentage rate. This makes this kind of loan much more expensive compared to other options.
If you are looking for a more traditional kind of loan where you pay in fixed installment, getting a long-term loan is the best option for you. One of the main advantages of having this long as that you only need to pay a smaller monthly payment all throughout the repayment. This makes it a whole lot easier for you to plan your cash flow and your budget because you know when to pay and how much you have to pay.
Same as short-term loans, long-term loans have its share of pros and cons. For one, the interest rate is also higher compared to previous financing options. Since it is a long-term loan, it also means that you have to expect a loan repayment period.
In getting a term loan, there are specific requirements that you have to satisfy. For one, you need to have a good credit score. However, there are some exceptions. There are lending firms that are willing to be more lenient when it comes to credit score. One of the best things about term loans is that it does not require any collateral. If you need money to purchase a very expensive equipment, this may be the best option for you. The requirements needed are not that strict. The approval process is quite fast as long as you’re able to provide your business and financial statements your business revenues.
Personal Loans for Business Purposes
Most of the lending options available for business owners require a certain number of years that a business is in full operation. But for business owners who have not yet established their respective business histories, there are still a couple of options. Personal loans that you can use for business purposes is actually available. For this kind of loan, the maximum loanable amount that you can get is up to $35,000 with interest rates ranging from 6% to 36% APR. The loan term is from 3 to 5 years.
What are the pros and cons?
Getting a personal loan for business purposes has its share of pros and cons. For its advantages, it can actually be less expensive compared to a business loan. Another thing is that if you have limited business history, this is one of the best options that you can get since the requirements needed are not that strict.
On the other hand, it has its cons too. First is that you need to have a good and solid personal credit history. The reason why there are landing firms that are willing to lend even if the business is not yet fully established because they take into consideration the credit history of the person applying for the loan. Another disadvantage is that the amount is quite limited. So if you really need a huge amount of money that you can use as a business capital.
This may not be enough for you
For businesses, there are several lending options that you can use as a business capital loan. It depends on different factors that you have to consider to ensure that you get the best deal. You also have to take into consideration the requirements and eligibility. In some cases, even if the business owner wants to have a good and affordable lending option, sometimes it’s just not available due to certain circumstances.
But for those that have a good credit history and established business names, choosing a business capital loan option does not have to be that difficult. You really just need to take the time to compare your choices and do your own research.