Whether your business is in an early stage or growth phase, additional financing can help you maintain momentum. You can take advantage of a business loan from Business Direct America for your short-term or long-term financial needs to avoid any type of working capital shortfall.
Term loan: the client takes advantage of the loan and pays it in equivalent installments. There is usually the option to pay in advance with excess funds, but there are no withdrawal options. Interest and principal repayment is made every month.
Line of credit: the client takes advantage of the loan and uses the same as a FIXED line of credit with the option of renewal every year. There is the option to prepay with excess funds, as well as withdraw within the available limit. There is only interest reimbursement, every month, applicable on the amount used.
Many lenders specialize in working within specific industries or have identified industries they won’t work with. Asking this question early will help you avoid wasting time with a lender that won’t be able to help you—regardless of your creditworthiness.
Last year the Federal Reserve Bank of New York reported the average small business owner spends 26 hours looking and applying for a loan. According to the ETA survey, the average small business owner in that group valued their time at $170 per hour. If that’s the case, that 26 hours can get very expensive very fast. Asking some of these questions early will help you save some of that very expensive time.
Timing for receiving approved funding depends on many factors. Each lending partner has its own approval processes, and results in differing funding timelines. The typical time to fund
Technically factoring is not a loan; it is the purchase of future receivables. A third party, known as a factor, purchases a company’s invoice(s) or purchase order(s) at a discount giving a business owner access to a percentage of that invoice or purchase order upfront, instead of when the invoice is paid. The balance, minus the agreed upon fees or discount, is paid to the business owner once collected by the factor. For example, if you had an invoice for $10,000, using a factor (or factoring that invoice) would allow you to access a percentage now, and the balance, minus the factor’s fee when the invoice was paid. Every factor is a little different, but let’s say the factor paid you $8,000 now and the factor’s fee was 6%, the transaction would look like this:$8,000 today + $2,000 – $600 (factor fee) when the invoice was paid Basically, you sold the $10,000 invoice for $600 to access the capital now, instead of later. You can read more about factoring in our Business Owners’ Guide to Factoring.
This is another important question. Because you’ve identified your loan purpose (your business need), you can determine whether or not you’re looking for a short-term or a long-term loan and will recognize a loan type that might not be a good fit.
In much the same way most consumers wouldn’t purchase a new car with a 30-year auto loan, you can quickly determine if the loan terms are right for your situation. There are lenders that offer exclusively either short-term or long-term loan options; so if you’re interviewing a lender who doesn’t offer the terms you’re looking for, you’ll recognize it.
There are a number of different pricing and comparison tools to help you assess and compare financing options. APR (Annual Percentage Rate) is one way to compare loans, although it should be considered along with the total dollar cost of the loan – this is especially true when trying to compare loans of different duration.
The APR calculation includes all fees, so be sure you are comparing an APR to another full-APR and not just the annualized interest rate..
As noted above, along with asking about the interest rates and the fees, it’s also important to know what the total interest cost—or total dollar cost of the loan would be. For example, if you were to borrow $10,000 and your total payback was $11,500, your total dollar cost would be $1,500. The dollar cost can help a business determine affordability and easily compare cost to the expected ROI.
Your loan purpose will help inform this decision and is one reason why you want to ask yourself this question before you get in front of a loan officer at the bank or an online lender.
Depending upon the lender it could take anywhere from a day or two to several weeks—or even months. For example, a loan from the bank (or an SBA loan) may take weeks to go through, while a loan from an online lender tends to be finalized within a few business days. Depending upon your loan purpose and how quickly you would like the capital, there may be some lenders you weed out early in the process because their typical approval process just takes too long.
Fortunately, there are lenders who are able to offer a quick decision, where if you are approved, you can have funds in your account sometimes as quickly as within 24 hours.
If they don’t report, your good credit behavior with them doesn’t do anything to help you build an even stronger business credit profile. There are some lenders, like merchant cash advance providers, that don’t. So don’t assume the lender you’re interviewing with does. This should be an important consideration when you’re looking for a small business loan.
You will discover there is likely more than one option available to you when you’re looking for a small business loan and some will likely be a better fit than others. As a result, you can look for a loan that will be a good option for your particular business situation.