Which Business Lending option is right for the businesses

A business lending solution can help determine a business’ financial wellbeing and growth trajectory. Business lending has a diverse product offering; business owners must evaluate their unique business needs, goals, and ability to repay before choosing a financial solution. The best loan product depends on how the business operates, credit profile, revenue and urgency when accessing funds.

1. Traditional Term Loans

Term loans are one of the most common and simple forms of business lending. Banks and credit unions lend money as a "term" loan to businesses; they pay a lump sum of the loan amount up front, and the business repays the amount over a fixed period of time, plus interest to the lender. These are best suited for established businesses with good credit histories that want to access capital for expansion, equipment, or long-term investments. Traditional term loans often require significant documentation, and the timeline to access funds is more lengthy than other funding options.

2. Business Lines of Credit

A business line of credit provides access to a set amount of funds that can be drawn upon when needed. Interest is only paid on the amount of funds utilized, not on the total credit availability. Business lines of credit are ideal for financing cash flow gaps, unexpected costs and/or building seasonal working capital needs. A business line of credit is flexible, revolving, and quick access to short term working capital that is great for small business.

3. SBA Loans

SBA Loans are designed to help small businesses access financing and have preferential terms and lower interest rates. The application process can be lengthy and require a substantial amount of documentation. However, SBA loans are a good fit for small businesses and many Start-Up businesses who may not qualify or find traditional financing ineligible. SBA loans can be used for working capital, to purchase equipment, purchase real-estate, or to refinance existing debt.

4. Equipment Financing

If your business lending is set to buy an expensive machine or technology, you may have the option for equipment financing. The equipment is collateral, which makes it easier to qualify with a slightly lower than desired credit score. Also, you don't have to come up with one lump payment for the machine or technology; you can actually put that equipment to work and make money from it, and then pay for it with a small portion of those earnings each month.

5. Merchant Cash Advances

A merchant cash advance (MCA) is a lump sum that you receive in exchange for a percentage of your daily credit card sales. This is a very high-cost lending tool, so you will want to only use it if your business has a fairly strong and consistent amount of daily credit card sales, along with little credit and limited collateral. An MCA is easy and quick cash, but it can be very expensive with high fees and may come with aggressive repayment terms, so make sure you don't overextend yourself before you sign.

6. Invoice Financing

For B2B businesses that have clients that often leave fees unpaid until the next monthly billing cycle, invoice financing really means you are borrowing against your unpaid invoices and enables that business to improve their cash flow, not to mention when given the choice of invoice financing as opposed to waiting on these customers to pay, it is an obvious choice. In B2B business environments, there are times that customers are exceptionally slow to pay, so even in those dire scenarios, invoice financing can also be used.

Conclusion

There is no single right business lending product of any kind for a B2B or B2C business. It is completely dependent on the cash flow situation, what your growth plan is and your ability to repay the loan. If you are seeking a long term solution or just a quick fix to a short term cash flow problem, you will choose the Trinity Consultings that need to understand the advantages and disadvantages of business lending products available and their effectiveness to help decide the best options available to you. A financial planner or lending team can also help in deciphering the streamlined lending agreement if it leads to the best business outcome as well.