For every successful small business, there comes a time when decisions need to be made about the best path for financing growth.
Whether your business needs an infusion of cash, a new location, an equipment upgrade, or is ready for expansion, there are an array of options to help get you where you need to be financially. However, every business’ needs can be different, requiring its own strategy and approach.
Here’s how you can match your small business’ financial needs with options for funding its future.
Focus on What Your Business Needs
While this sounds like an obvious first step, it is easy to lose sight of what your small business truly needs to take its next steps. Take a step back and look at your business plan and finances from a broad, long-term perspective, not just the here and now.
Having a long-range plan in place will help you, and your lender, determine the best loan options for your specific needs. Ask yourself how this loan will make you more profitable, better positioned against competitors and give you agility to grow your customer base or suite of products or services.
Avoid the One-Size-Fits-All Trap
Once you have your plan ready, it’s time to determine what type of loans are the best fits. It’s important to remember that it is okay to have more than one loan for your business, as long as you have the revenue streams and cash flow to pay them back.
Speak with your lender about all your options based on your plan, not just zeroing in on one or two loan types that may be less favorable to you in the long run.
Find The Right Partner
As mentioned, there are many options to fund your small business. Seek out lenders that will work with you and provide consultation about the different options. It may turn out that your first option is the best fit, or some additional discussions lead to loans you might not have previously considered that help you execute your plan more effectively.
Do Your Homework
While your lender should provide the details for your loan options and help you choose the best fit(s), I recommend having at least a baseline understanding of common small business financing options, including:
• Small Business Term Loans — Term loans offer fixed or variable rates for up to 10 years, and can be used for a variety of needs, including working capital, vehicle purchases, debt refinancing and more. Additionally, some lenders offer “express” loans that can be approved quickly with lower amounts borrowed and shorter terms, a great option for busy entrepreneurs and small businesses that need quick and easy access to cash.
• Small Business Lines of Credit— Lines of credit are great for providing cash flow if your business experiences seasonal changes in working capital, as well as unexpected changes or fast-moving business opportunities you want to take advantage of.
• Small Business Administration (SBA) Loans — SBA 7(a) Loans are a popular option due to their low cash investments, long repayment terms and guaranteed backing by the government, allowing flexible credit requirements for borrowers that have challenges obtaining traditional bank financing. SBA 7(a) Loans can be up to $5 million and provide repayment terms of 10-25 years at modest rates.
• Equipment Financing Loans — Whether your small business needs equipment or is in the business of selling equipment, financing those purchases and transactions efficiently is key. There are even tax benefits to using financing to purchase equipment or software for your business!
• Small Business Real Estate Loans— Purchasing the property where your business lives is an attractive option for many small business owners, as it establishes cost certainty, can generate revenue and reinvests back into your business. Plus, these loans have fixed rates for up to 20 years and terms up to 25 years, aiding long-term growth plans while building equity and value.
Wherever your small business is in its growth journey, stay connected with your lender and business support system, including tax and legal professionals, to build a cohesive team that is ready to assist when the time is right for you seek funding.
Candice Caruso is senior vice president, director of government guaranteed lending at WSFS Bank. She brings more than 20 years of experience in the financial services industry, including 12 years as a business funding expert, and has been featured on Bloomberg Radio, CNBC’s Closing Bell, The Wall Street Journal and Franchising World.