There are so many different types of small business financing it can be difficult for newer entrepreneurs to nail down exactly what type they need. It is fairly easy to recognize that if you are starting a business, start up loans are the way to go. After that point however, it can get kind of hazy. For example, what if a piece of equipment breaks down and you need to have it fixed or replace it, would that fall under equipment financing, or would a business line of credit better fill that need?
Start Up Loans
Start up loans are pretty much self-explanatory. With very little deviation, they cover every aspect of the cost of getting the business started, including the building, equipment, and even inventory. When you apply for a start up loan you will have to submit a business plan. Part of this business plan should include a breakdown of the amount of funds needed and what each cent will be used for.
Business Lines of Credit
A business line of credit is the “financing on hand” for those times when cash on hand will simply not cover everything it needs to. It can be used to cover everything from unexpected repairs to normal operating expenses as needed. The business owner simply makes a payment monthly, and it can either carry a balance or be paid off. There is typically a limit, and as long as funds remain below that limit the remainder can be used however needed per the term of the loan.
Other Types of Financing
There are various other types of financing available depending on multiple factors. For example, start up loans are available that are targeted specifically for women, veterans, and minorities. There are alternative lending options for those that do not have the best credit, and the government even offers loan guarantees through the Small Business Administration. The best way to determine which types of financing will work best for your circumstances and needs is to speak with a neutral professional. The SBA can help with this, as well as others such as Biz2Credit.com.
Determining the type of financing you need is the first half of the battle. Take the time to talk to a professional that can help you understand what is available and walk you through the application process if you are new to it.
This article was submitted by Faith Stewart. Faith Stewart has a BBA with a major in accounting and spent 10 years working in the various aspects of accounting and finance before pursuing her passion for writing.