Factors to Consider When Financing Your Small Business
- Why do you need financing? Consider short-term financing such as a line of credit or merchant cash advance if you need money for seasonal payroll, inventory or other operational expenses, Capital expenses such as equipment purchases, real estate or other fixed assets may be eligible for long-term financing.
- How urgent is your need? Consider the lead times involved in various financing options. It can take many months to finalize venture capital or angel funding (if it’s even available). Traditional bank loans can take a month or more for approval. If you need funds immediately, consider revenue-based financing or merchant cash advance, which can provide cash in a week or less.
- Do you need short- or long-term financing? A bank line of credit, merchant cash advance or revenue-based financing can provide short-term funding for things such as seasonal payroll or emergency expenses. Traditional bank loans and equity investments can provide long-term financing for capital expenditures and business expansion.
- How is strong your credit history? Traditional bank loans require a high personal credit score. Consider alternative funding options such as revenue-based financing or merchant cash advance if your credit report is less than stellar.
- Do you want to use your personal assets as collateral? For traditional bank loans, you’ll usually need to provide collateral in the form of personal property to help the bank minimize its risk. Consider other financing options if you don’t want to use your home or other property as collateral.
- Are you ready to give up equity? Venture capital and some angel investments are off the table unless you are willing to sell a portion of your ownership in the company. When you sell a share of the company to a VC or angel, you’ll often give up a certain degree of control, too.
Qualifying for Business Financing
The table below compares the basic qualification requirements for equity financing, traditional bank loans and alternative lending.
|Traditional Bank Loans
Learn about: Common Sources of Business Financing
Learn About: Comparing Equity & Debt Financing
Learn About: Online Resources for Business Financing
Learn About: Frequently Asked Questions