There are a few different types of debt financing that small business owners can apply for online. Before you apply for debt financing online, you should understand what your financing options are and how to get approved for them. In this blog I’ll discuss a few different types of small business debt financing to help improve your understanding of what may be available to you (and what will work best for your business).
The best way to approved for any type of financing is to understand what banks and lenders expect of you so you can do what needs to be done to meet those expectations. For example, if you want to apply for a business line of credit, a lender may expect you to have at least a 680 personal credit rating and full time job (for at least 6 months). When you know this, prepare yourself to get a 680 personal credit score and full time job (if you don’t already have them).
Long Term Debt Financing for Small Businesses
Term loans such as unsecured business loans, secured business loans, equipment loans, and SBA loans are considered long term debt. Long term financing options like these can often have lower interest rates, stricter requirements for approval and/or stricter requirements in regards to how the funds are used. Established businesses are usually the best candidates for long-term financing. Most long-term financing programs require you to pledge collateral and/or own a business that’s currently generating revenue. The amount of revenue the business should be generating and the type of collateral that can be pledge will vary from lender to lender. Here are a few details about each type of long term financing that’s available to small businesses—
- Unsecured Business Loans – This type of long term loan requires no collateral and a good personal credit score for approval. Depending on the lender, your business may also need to generate a minimum amount of revenue for a specific period of time for you to qualify for approval. Unsecured business loans can have interest rates of 6% to 20% with pay back terms of up to 6+ years. They can usually be used to pay for any business expenses (some lenders have restrictions on how you can use the funds).
- Secured Business Loans – This type of small business financing does require you to pledge collateral to have your loan request considered for approval. You can sometimes get away with having a lower personal credit score (than you would with an unsecured business loans). Pledging collateral and owning a business that has been in operation for a while and has consistent cash flow is the key to getting approved for an unsecured business loan. Interest rates and terms are similar to unsecured business loans.
- Equipment Loans – This type of financing can be used for purchasing equipment that has a long life (and doesn’t become obsolete quickly). You will need a good personal credit score to qualify for an equipment loan.
- SBA Loans – The U.S. Small Business Administration works with a number of community banks and lenders that provide loans to small businesses in their area. You could obtain a microloan under $50,000, a working capital loans over $250,000, or even a line of credit through SBA financing. The SBA doesn’t lend money directly to small business, rather, they provide the funds to intermediaries (i.e. your local community banks and financial intuitions) and they lend the money to you. To find SBA loan intermediaries in your area, visit the SBA website to learn more about the SBA Linc Program. The SBA connects borrowers with approved lenders through the program.
Short Term Debt Financing for Small Businesses
Credit cards, whether business for personal are considered short term debt. Short term debt usually has much higher interest rates than long term debt. Another major difference between short term financing and long term financing is that short term debt like lines of credit can be “ongoing.” Once you are approved for a credit line, you can have it for life as long as you make your monthly payments on time and the lender wants to keep you as a client. When you borrow and use a short term loan, you have to reapply for another loan (after you’ve used the first one). There’s no guarantee you will be able to get approved for another loan. This is why it’s a good idea for all business owners to have at least one or two credit lines for their business.
Depending on the lender, you may also be required to pledge collateral to get approved. In the case of credit cards or credit lines, if they are unsecured you will not be required to pledge collateral for approval. However, lenders will require you to have a good personal credit history. Obtaining unsecured debt (whether long term or short term) usually requires you to have a well-established personal credit history and good personal credit score.
Business Expenses You Can Pay for Using Short Term or Long Term Debt Options
Equipment, Supplies, and Inventory – Depending on your business industry, equipment, supplies, and inventory may be needed to fulfill sales requests. If that’s the case, purchasing these things with and unsecured business loan or line of credit may be a smart move.
Marketing & Advertising – Promoting your products or services to capture the attention of your target market is one of the best revenue generating activities you can implement after obtaining debt funding. Marketing and advertising done right will attract people that can turn into customers for your business.
Sales Team – Upon attracting potential customers to your business, you may need a sales team to help you close sales. Debt funding can be used to pay your sales team. Having a sales team is critical to be able to actually sell your products. Closed sales equal revenue generated.
Apply for Debt Financing Online – LenCred Can Help
The LenCred team will work with you to get a better understanding of your business needs, financial situation and creditworthiness. They will use this information to determine what type of debt financing you will qualify for at this stage in business. Once they determine what type of financing will work best for the business, they will help you apply. You could have up to $50,000 or more in funding for your business in as little as 30 days with LenCred’s help. Whether your business is a startup or established company, LenCred may be able to help you get the debt funding you need to take your business to the next level. Click here to complete a prequalification application and get a FREE consultation from an experienced LenCred Advisor.