Thomas A. Hauck asked:
Your business is doing well. Your customer base is growing, and during the last quarter you actually turned a profit for the first time since you opened your doors last year. You have a solid business plan and now it’s time to think about moving out of your rented space, buying more equipment, or perhaps hiring more employees.
Perhaps your business is profitable but during your slow season you’re short of cash. Or your delivery truck just broke down and you have decided its time to get a new one. You need to get cash to keep your business moving forward. Where do you start?
The good news is that there are a wide variety of loan programs available that can be applied to almost any business situation. The bad news is that the choices can seem complex and overwhelming. Here are some options that a small business owner can consider:
Business Lines of Credit
If your business is profitable over the course of the fiscal year but there are times when you are short of cash because your income is seasonal or cyclical, you may benefit from a business line of credit. A line of credit provides access to cash for a variety of short-term financing needs and gives you the flexibility to draw on the line at any time as long as you pay down the balance.
Typically, once the line of credit is established funds are available when you need them, but the advantage is that you do not pay interest until you draw on the line. Lines can be secured or unsecured, with multiple repayment options and a variety of interest rates.
Interest rates generally range from nine to fifteen percent based your personal and business credit history and other factors. You would generally not use your business line of credit for expansion or capital investment, because you may not realize income from your expansion for many months. For expansion you should consider a loan.
Business Loans $25,000 and Up
A business loan provides access to cash for many kinds of one-time expenditures and long term financing needs such as fixed asset purchases, or business expansion or acquisition. Unlike a line of credit, a business loan is amortizing and is fully disbursed when you close the loan. You may have the ability to lock in an interest rate.
There are many types of business loans:
• Vehicle Loan — Finance the purchase of a new or used vehicle.
• Equipment Loan — Finance the purchase of new or used equipment.
• Real Estate Loan — Finance the purchase of commercial real estate.
• Secured Loan — Get permanent working capital, improve cash flow, purchase inventory and materials, finance accounts receivable, expand or remodel facilities.
• Agriculture Loan — Finance crop and livestock production expenses, purchase equipment, breed livestock, purchase land for farming or ranching.
• Cash-Secured Loan — Get permanent working capital, improve cash flow, refinance debt, purchase inventory, materials, equipment, or vehicles, finance accounts receivable.
Business loan rates depend on a number of factors, including the amount you borrow, your collateral, financial strength of your business, term of the loan, and your credit rating. Over the past ten years business loan rates have fluctuated between four and eleven percent.
Small Business Association (SBA) Loans
If you have less-than-stellar credit or you are not sure you qualify for a regular bank loan, you may qualify for a loan program backed by the Small Business Administration (SBA). The SBA has created a program of government-guaranteed loans designed to make loans to small businesses that may not otherwise qualify for credit. SBA loans make it possible to qualify businesses more easily and provide them with more flexible terms than conventional loan options. You can get more information at http://www.sba.gov/, or talk to your local commercial banker. The SBA does not make loans to small businesses; it is a guarantor of loans made by private banks and other institutions.
Talk to your local commercial bank when you’re ready to consider a line of credit or a loan, and you’ll see the range of choices available to you.
© 2008 Thomas Hauck Communications Services
