A small business will come with regular, and sometimes unexpected, expenses. While almost all small businesses will have extensive startup costs, that is hardly the end of your need for funds. In fact, a regular need for extra cash can be extremely common when operating a small enterprise.
For this reason, understanding various loan options that can be employed once your business is up and running is essential. Read on for some key types of loans that can be invaluable for a small business.
1. Lines of Credit
Lines of credit can be an essential source of funds for small businesses. These loans function similar to credit cards: you can draw cash up to a certain limit, and once that limit is reached, you will be unable to draw more until you repay the outstanding balance. Lines of credit can be secured (backed by collateral) or unsecured.
A line of credit is a helpful type of loan because it provides a consistent buffer to draw on as expenses rise. It can be used to cover payroll in hard times, or to order more supplies or other inventory when business is busy. In other words, it offers flexibility — and if repaid regularly and on time, can help build up your business’ credit profile.
2. Asset-Based Loans
Asset-based loans are another useful class of loans for a small business owner to know. These loans are essentially lent based on the value of an asset put up as collateral, which can be equipment, inventory, real estate, or something else. Asset-based loans are especially useful because they are often quick to secure, and have few strings attached.
Of course, be careful to avoid defaulting on an asset-based loan, as a default can lead to a loss of valuable collateral.
While not quite like other types of financing, crowdfunding can be a useful option for businesses at many stages of development. In its simplest form, crowdfunding involves soliciting donations from the community, or wealthy individuals, to support an endeavor. It can be particularly effective if your business already has significant community support, or a notable public profile, and thus a wide audience to draw on. It can be used to generate funds to expand a business, rebuild or renovate, or for other purposes.
In general, many types of lending options can be useful for small businesses at all stages of their life. The options above suggest some effective places to start when seeking additional financing for a small business.