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Operating A Small Business: Exploring Your Options For Business Funding

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There are a variety of reasons why your small business may encounter the need for additional funding. For instance, this funding may be required in order to cover shortages in your budget, purchase new inventory, or expand your operation. Regardless of what you need the money for, you should know that there are several options available to help you get the business funding that you require. You can learn more about these options and the benefits that they offer below.

Option #1: Traditional Business Loan 

Traditional business loans are made available by financial institutions such as banks, as well as by many local, state, and federal government programs. This type of business funding often offers access to the largest amount of capital when compared to other funding options. The terms on these loans will also be more favorable meaning that the overall cost of borrowing money will be lower. However, this funding option will also have the strictest requirements in order to qualify. In most cases, you will need substantial income or assets and a good business credit score in order to qualify for this type of funding. 

Option #2: Working Capital Loan or Merchant Cash Advance

Working capital loans and merchant cash advances are offered by payment processors rather than financial institutions. These business funding products are not loans in a traditional sense. This is because these funding products essentially allow you to borrow against your future credit and debit card sales rather than extending an unsecured line of credit. Consequently, this funding option will often be the easiest for small business owners to qualify for. The downside is that a portion of all card transactions that you process will be intercepted by your lender until you have repaid the entire loan and applicable fees.

Option #3: Private Loan

If you prefer a traditional loan but find that you are struggling to get approved by a traditional lender, you can choose to seek out your business funding through a private lender. These private lenders are essentially investors, however, these investors will not hold an ownership stake in your company unless you default on your loan. Since each private lender sets its own terms for qualifying, this is often the best option for business owners with unique financial circumstances that need to be accommodated. For example, if you run an all-cash business, you will not be able to qualify for a working capital loan or cash advance since you do not have credit card sales to borrow against. You may also find it difficult to meet the accounting requirements of traditional lenders. A private lender on the other hand will be far more flexible when it comes to dealing with your all cash accounting. Unfortunately, these private loans can often come with a higher interest rate than traditional loans as a result of the higher risk that the lender is taking on.