Access to capital is getting easier for small business owners, yet not all are taking advantage of all of the funding resources that are available. More and more small business owners believe it?s only slightly or not difficult at all to get a loan or other capital for their business. However, some small business owners may use personal sources of funding, such as personal savings, retirement savings or capital from their family and friends, over traditional sources of funding such as bank loans, bank credit lines, business loans or Small Business Administration (SBA) loans. Alternative Financing options are growing however, and can be much easier to procure than a traditional loan or without the added heart ache or embarrassment of using personal sources of funding.
A Few Varieties of Small Business Loans
If a small business qualifies for a bank loan, that?s where they can start. Banks simply have the most money to loan because of their access to checking and savings deposits. Community banks and credit unions are the best option for small business owners who have near perfect credit scores or lots of collateral. The downside to bank loans is the high bar to qualify. And because businesses are typically looking for loans when their finances aren?t perfect, that can be an issue. It?s easier to borrow money when you don?t need it, really applies here,
Personal Credit Cards
Business credit cards are commonplace in the small business world, but experts recommend personal credit cards as a far wiser option. Consumer protection exists for personal credit cards, versus business credit cards. When choosing this option, it?s important to keep the paper trail in order. For all business purchases on a personal credit card, a small business owner must keep detailed expense reports to account for the funds being transferred out to pay the bill.
By and large, commercial alternative lenders such as merchant advance loans or peer-to-peer lending sites give small business owners quick access to capital. Because of the wide variety of these options, Weiss stresses the importance of closely examining the terms offered by each company or organization. It may seem like an annual percentage rate doesn?t matter when only borrowing for a month or two; however, these short-term loans often become a habit, and multiple short term interest periods can add up.
There?s a very specific scenario in which personal savings can be a good option for small business owners needing access to cash. If savings are sitting around not earning as much interest as they could from being loaned to one?s own business, it can be a good investment. Otherwise, the risk to personal finances can be great. Some prefer to rely on loans from friends and family, which can offer very flexible terms. But the decision to wade into that territory, depends entirely on one?s personality. It?s what you can tolerate, some business owners wouldn?t want the responsibility of being beholden to a family member or a close friend.
So, where?s the best place to get a small business loan? The answer can take many forms. With the right loan source for the right situation for the right reasons, small business owners can take advantage of this access to cash to grow, meet their goals, and continue to do great things for their customers.