One of the major challenges faced by millions of business owners in the United States and across the globe is funding options for my business. While there are quite a number of funding options available to businesses, making sense of the right option can be sometimes tricky.
Some of the factors to consider before Choosing Business Funding
Will the borrower pull personal credit score?
A lot of financial products like lines of credit, invoice factoring, and term loans rely on personal credit to approve a loan even for a small business. Some products even go ahead to penalize business owners, reporting issues back to the credit bureaus if payments are not made on time.
Will the lender contact customers?
Funding options such as invoice factoring often have to contact the customers of the business due to the repayment process of the fund. While some businesses are indifferent about making contact with their customers, others do not want third-party interference with their customer relationship.
Will the lender give more money than needed?
This factor is mixed as it depends on the borrower’s perspective. Getting a huge term loan for more money than needed might add up to a lot of unnecessary interest payments.
Do they charge a lot in fees?
It is important to look closely at the fees charged such as origination fees, subscription fees, maintenance fees, and prepayment penalties. Therefore, it is important to look at the component of the fees as these fees are often tacked on in addition to the interest rate and might be covered only in the fine print.
Can there be a case of debt spiral?
Some financial products allow borrowers to extend their debt past the final term period. Usually these products add fees to the interest borrowers owe, which can create an ever-increasing debt that can be very hard to pay down.
Some of the funding options available to small business owners include Traditional Bank Loans, Business Lines of Credit, Merchant Cash Advances, and Loans from the Small Business Administration.