There are some difficult decisions to make when it is time to finance a small business. The decision of which type of financing to go with it only one of them. There are loans, lines of credit, and even credit cards to consider. How do you know which one will work best for your situation? These tips should help.
How Much Do You Need?
There are times when you simply need more money than business credit cards can offer. One of these times is during the startup phase. It probably isn’t a good idea to finance startup on business credit cards. There are several reasons for this, but the most prevalent one is that most entrepreneurs are unlikely to be able to get enough financing on one card to cover all of the costs of startup. It may be possible to get it across several cards, but not likely. In truth, it really depends on the business. A small home-based business that will have fewer overhead costs at startup may be able to utilize credit cards, but most businesses will not when it comes to startup. Additionally, many cards have 19% APR financing charges – much higher than the interest rate of a small business loan from a bank.
What Do You Need Financing For?
Are you looking to float everyday operating expenses, or are you looking to buy something specific? Do you need a way to pay the light bill in a pinch, need a new printer or computer, or a larger piece of equipment? Do you need funds for repeated, multiple purchases, or are you only looking to update one or two things?
For larger, one-time purchases, business credit cards may not be the wisest choice. However, they can be quite handy for smaller, recurring expenses or occasionally replacing smaller items. They are easily accessible, meaning if you need a new computer or you need to float a bill one month, you can do so without applying for a loan.
Which Is Better?
If you need a reliable source of funds on hand for emergencies or unforeseen circumstances in a small amount, then business credit cards are a great option. If you need funds for a onetime expense, startup expenses, or for something on a larger scale such as major equipment, a small business loan may work better.
Biz2Credit has a network of over 1,300 lenders that can offer options for each of these as well as a range of financing products in between.