When running a business, there will be natural peaks and troughs. As well as times of high demand and growth, your business will likely experience occasions on which cash is short supply. This could be due to a decrease in demand, an increase in the cost of materials, unexpected repair costs, overheads becoming more expensive, and countless other reasons. In order to continue operating, it may become necessary to inject the business with cash. There are a range of finance options available, but it can be difficult to understand which solution is best for your unique business. In this article, we will introduce you to the most commonly utilized business loans, and explain their pros and cons.
If your business is in its infancy, there is usually a significant initial capital outlay. This could be to purchase equipment, secure the first wave of supplies or raw materials, recruit and onboard employees, or cover any additional costs of entry to the market. Actual costs can be larger than those that are projected at the planning stage. As such, additional funds may be required at the start. Fortunately, there are specific loans available for this stage, known as startup loans. They are designed specifically for new businesses, and repayment times can vary from six months to five years. APR can vary widely, but is generally higher on loans that come with short-term repayment periods. Note that the business owner’s personal credit score will need to be very good to secure this type of loan.
Short-term business loans
Sometimes, cash flow problems can be temporary, caused by specific transient issues that are not expected to hinder long-term business. This could be as a result of unanticipated equipment failure, building repairs, or reduced supply of materials. If these circumstances are affecting your business, a short-term loan will be sufficient to keep everything ticking over. This type of loan usually comes with a short repayment period, from six months to two years, and a high APR can be expected as a result. Note that you must have confidence in the ability of your business to recover from a temporary issue, in order to ensure that repayments are made on time and in full. If not, the high APR and any additional penalties can be costly.
Personal loans for business
For small businesses, particularly those with just one owner and no independent credit history, another option is to secure a personal loan for business. The application process is relatively straightforward, although success is dependent on the established credit rating of the applicant, usually the business owner. Repayment usually takes place over a longer period, of 5 to 10 years on average. Large or small amounts can be borrowed, and this boost can help to realize substantial projects such as a modernization of equipment or expansion of business scope. Be aware that failure to repay the loan will have an impact on the credit score of the applicant, as well as their assets.
How can I start my application for a business loan?
You can take steps to securing finance for your business by working with a specialist company, such as Lend Genius, that will help you to find precisely the right loan for your circumstances. Learn more and apply here today!