Funding Options for Start-Up Businesses

Capital is often needed for small businesses to grow, and various sources can give the funding. Before you apply for any funding, you need to ensure you have a business plan in place, how much funding you'll need, and have a clear outline of how you plan to use the money. Investors will want to know that you're a good risk for them and will look at the management of your business to gain confidence in your business plan and the people behind it.

Every small business has different financial needs. Because of your financial situation and your vision for your business, the solution you choose will help you shape the financial future of your business. Read further to determine which one of the various funding options is suitable for your small business's start-up.

As a small business grows, so do your management needs. It's at this point that you'll need to consider swopping from a business credit card to a corporate credit card. With a corporate credit card, the debtor is the business itself, so if the company goes out of business, the debt gets paid by the business and not the owners.

The issuer will consider the business's credit score, and the owners and operators don't need to provide any personal guarantees. Liability lies with the company, but in some cases, liability may apply to an individual.

·        Corporate liability: Responsibility lies with the company to pay the bill, and the issuer does not consider employees' credit. Expense reports get filed by the employees for the company to reconcile and don't get paid upfront by employees.

·        Individual liability: All charges on the card get paid by the employees, and they get reimbursed after filing an expense report. The issuer will check employees' credit scores, but it won't affect their personal credit scores. A disadvantage is that employees would have to wait to get reimbursed.

Lines of Credit

For a flexible loan option, you will do a line of credit. Similar to a credit card, a line of credit is a specified maximum amount of capital for a business available through a lender. Your cash flow and business credit rating will affect how much capital the lender with provide for you. This is a low-cost option for any short-term financing needs such as capital to manage cash flow, the flow of seasonal changes, or unexpected expenses. Your line of credit can get loaned and paid back multiple times. This is known as a revolving line of credit.

How does a line of credit work?A business loan gets issued in a lump sum with fixed payments over time. A line of credit only gets paid when you have drawn from the line. You will also only pay interest on the amount you drew, not the full line of credit. You get to decide if and how you use your borrowed capital. There might be a small monthly fee with a line of unused credit, so be sure to inquire about all the fees involved.

Even if you think your business is doing fine without it, a line of credit will provide you with the capital you need for any unexpected expenses or if you see a good investment.

Term Loans

A long-term loan is when a business owner gets a large amount of capital for multi-year use. It is the better option for businesses with a long documented financial history and collateral. It can get used for large marketing campaigns, new product development, international expansion, or business operations.

Short-term loans are perfect for fast funding for businesses. You receive a lump sum of cash, and the repayments get made daily, weekly, or bi-weekly. This loan is perfect for businesses that have high and consistent sales that need unsecured cash.

Many small businesses tend to gravitate toward short-term loans because of how fast it is to get loans and convenience.

Equipment Financing

If you need to purchase equipment for your business, this is the perfect loan. Many small businesses seek outside financing because of equipment costs. With equipment financing, you can buy what you need without having to pay upfront. You can purchase office equipment such as desks, chairs, farming equipment, or machinery.

Most small business owners find that the low-interest rates are the selling point, but another perk is that the loan is tax-deductible. The monthly payments are predictable, so if your cash flow is steady, you won't see it affecting your budget too much. If you struggle to get approved for other types of financing, you might get approved for an equipment loan because the equipment is your collateral against the loan. If you fail to make the payments, the lender can seize the equipment as payment for what you owe.

 Merchant Cash Advance

Merchant cash advances are an alternative to traditional bank loans, as business owners get funds from a merchant cash advance provider as a lump sum. The advance gets repaid with a percentage of the business's sales. An advance is perfect for your business if you need access to capital quickly.

To qualify for a merchant cash advance, you don't need to be in business for a long time. The number of credit card transactions and the amounts of them are what's important. If your business doesn't process credit cards, the lender will look at your monthly deposits and cash flow. This makes merchant cash advances a good choice for businesses with poor credit quality but has high sales numbers.

The lender looks at the gross deposits of three to four previous months of Business Banking statements, then advances 75% of the average deposits to the borrower. The borrower will then pay back the funds with a factor rate included and make the payments daily or weekly until the total balance is paid back.

There is very little paperwork, and approval usually takes 24 to 72 hours. However, with the convenience of fast approvals comes higher interest rates. You want to avoid relying only on merchant cash advances due to the higher costs, as it can become difficult to manage future cash flow.

Every merchant cash advance consists of the following:

·        A principal amount

·        A factor rate

·        Payment frequency which is usually daily

·        A payment period

·        A percentage deduction of daily credit card sales, including your future sales, or three to four months of your gross monthly deposits.

A merchant cash advance is best suited for the following:

·        Unplanned expenses

·        Temporary cash flow help

·        Working capital

·        Purchasing inventory at significant discounts

·        Paying other debts

Is merchant cash advance right for you?

The advance is to help small businesses access quick capital, but it can jeopardize your cash flow if you aren't careful. It seems attractive if you have a bad credit profile because you can fund those short-term opportunities.

As with any other type of loan, you should avoid defaulting on your payments, as personal guarantees are usually in a contract between you and the lender. In the event of non-payment, the lender can recoup their advance through pursuing your personal and business assets.

Merchant cash advance providers don't report payment histories to business credit bureaus, but they will report a default. This will make it a lot more difficult for you to get financing in the future.

How Kamber Enterprises Can Help Your Small Business

At Kamber Enterprises, we understand that businesses need funding to continue with growth, and sometimes funding is an option for those with bad credit. When banks don't want to provide funding, we will.

We specialize in helping start-ups secure capital to help them achieve all their financial goals. Our application process is quick and easy, and we provide funding fast, within 24 to 48 hours.

We provide an array of services. If you need assistance in making the right choice of funding for your start-up, contact us at [email protected] or 888-373-8648. We are committed to helping you fund your dreams when banks won't.