Like college basketball teams competing for the top spot in the NCAA Basketball Tournament, when your company needs money, you have lots of small business loan alternatives competing for your business. How do you winnow them down to a “Final Four” and then to the winning option for you?
With so many small business loan alternatives out there, choosing the right one for you can easily be overwhelming. However, if you apply a systematic approach to the task, it’s really quite easy.
Assessing Your Small Business Loan Alternatives
Start by eliminating the financing methods that are obviously unsuited for your business and the way you plan to use the money. This approach will help you narrow your options as quickly as the NCAA basketball teams go from 64 to 32. Consider:
How much money do you need?
If you only need to borrow $20,000, a traditional bank loan (which generally focuses on lending amounts of $500,000 to $5 million or more) isn’t going to work. Nor will you be able to interest venture capitalists in providing such a small amount of money.
How quickly do you need it?
In addition to the amount of capital you need, consider the timeframe in which you need it. Do you have the opportunity to take advantage of a great deal from a supplier, but it’s only available for two weeks? If so, you’ll need a fast form of financing.
How much time do you want to pay it back?
If you’re borrowing a large amount of money, you may need a year or more to pay it back. However, if you’re looking for a small amount of capital, you may prefer to get the debt off your books fast. In this case, you’ll want a small business loan alternative that allows you to repay the loan quickly.
What track record does your business have?
Some small business loan alternatives require a lengthy track record, a certain level of sales or a very high credit rating to get capital. If you haven’t been in business very long, you may not meet these criteria, and you’ll need to look for a different type of financing source.
Choosing the Champion
Taking the steps above will likely give you a smaller field of small business loan alternatives to investigate. Now, dig deeper into the pros and cons of each method and make some one-on-one comparisons.
Invoice financing versus bank loans
Getting a bank loan can take weeks or even months and requires stacks of paperwork. With invoice financing from Fundbox, however, you just create a free account, connect it to your accounting app and, and when you’re approved, you can immediately start financing your invoices. Depending on your bank, the money can be in your account as soon as the next business day.
Invoice financing versus factoring
Many business owners confuse factoring with invoice financing, and there are some similarities. However, factoring companies will only advance you a percentage of your unpaid invoices; invoice financing companies advance you the full amount. Wouldn’t you rather get all the money that’s owed to you?
Invoice financing versus merchant cash advance
Merchant cash advance financing is available to companies that accept a lot of credit card payments. While this can be a quick way to get money, the industry is also known for high interest rates and other fees. Fundbox invoice financing, on the other hand, it’s always clear upfront what you will pay for capital.
If you need capital quickly, easily, and at an affordable interest rate, invoice financing just might be the winning small business loan alternative for you.