Small Business Credit Opportunities

Small businesses are a great asset to the economy, but it can be difficult to get enough financial support to get the start-up off the ground. Because of the fledgling nature of the business, it can be hard for lenders to assume responsibility for the risks and opportunities that come with a new business account. This isn’t to say that financing can’t be achieved.

There are several funding options available for the aspiring entrepreneur, yet there are a few things you should know before making any calls.

Review What a Lender Wants

First and foremost, any type of financing demands a credit report inquiry. As each lender needs to determine the risk of the account, the credit history supplies a basic overview of the applicant’s financial stability. As a new business, you may not have a substantial credit history as an institution, so lenders may want to look at your personal credit score and open accounts. Even if these numbers are in acceptable ranges, the lender may require collateral for your loan or credit application. This is an item or asset of value that the lender can take control of if the borrower defaults on the terms of the loan. Collateral keeps the risk level down for many lenders.

Types of Credit Opportunities

The size of your business and type of venture will be the first considerations for the type of funding you may need. In addition to federal programs that support small business enterprise, there are many private lenders and financing companies willing to give your business financial assistance. Financial services come at a cost, and you should be careful when selecting from the following opportunities. Weigh the benefits against the expenses before making your decision.

1. Small Business Administration (SBA) loans.

The federal government demonstrates its commitment to growing the economy through employment opportunities and new businesses. The SBA works in connection with the banking industry to offer low rates for a business owner who might not be able to qualify for a traditional loan. The SBA subsidizes the rate differential for the banks and also provides the borrower with a more flexible repayment plan. There is steep competition for these loans, but the SBA website makes it easy for a potential borrower to fill out an application.

2. Local Banks

Because of the strict financing guidelines that direct private and public banking institutions, many start-up companies find it difficult to apply for a traditional loan. These institutions place a strong emphasis on the credit report findings, as well as the collateral and potential profitability of the company. If your business is designed to meet a local economic need, try looking for help from a community bank or credit union. They generally provide lower lending rates and are more in tune with the needs of the community and local trends.

3. Factoring

A non-traditional form of lending, factoring allows a small business to capitalize on outstanding invoices and turn them into quick cash. A third-party lender will offer an advance for open customer accounts and assume control of collecting the payment. The downside to this financing choice is that companies only receive a percentage of the original account total. Factoring companies take a fee for their services, which if used recklessly, can hurt the business in the long run. There are several types of factoring services and not all factoring companies offer the same contract terms. Check into the details of the company for signing on the dotted line. This option places less emphasis on your credit report, but it does present a risk if your customers are consistently paying late on their accounts.

4. Merchant Cash Advance

Another non-traditional credit opportunity comes through a merchant cash advance. If your company takes in a lot of credit card payments, this might be a great opportunity for financing. In this process, your company’s credit history does not affect your qualifications. The lender looks at your credit card receivables and determines the risk accounting to your overall activity. Your business is extended a cash advance, and the lender is repaid directly through a percentage of your credit card sales. This allows a merchant to pay for the loan a little at a time and on a schedule that won’t present an undue hardship on the business.

5. Investors

Although not considered an official credit opportunity in the strictest sense of the word, seeking help from private individuals or potential investors can bring in the finances needed to get your business off the ground. This can be a difficult process, but there are several large companies who are always looking for something new to sink their money into. These players are called angel investors and could be an opportunity worth pursuing.

If you need financing to jump-start your business dreams, these options might present the right choice. Carefully consider the outcomes when submitting your application or pursuing an investment.