You need financing to buy inventory, invest in equipment, expand operations and smooth out uneven cashflow. In days past, you’d head to the local bank branch and pitch your business to a manager. Today, we have more options and opportunities for funding, and getting finance for your small business is faster and easier than ever.
The desire for choice is clear. According to our research1, 69% of entrepreneurs find getting finance is one of the biggest barriers to becoming their own boss and running their own small business. This is despite 63% of respondents having visions for working for themselves and 69% willing to take a pay cut to live out their dream.
With so many sources of small business funding hitting the market, it can be hard to keep track of what’s what, even if we have time to do so. We’ve looked into a few options which are helping small businesses get ahead.
Traditional loans work well for established, well-documented businesses that need to make large investments. But a bank loan remains an alluring small business funding option for one reason: a competitive interest rate.
With a traditional loan, you borrow a lump sum and gradually repay it over a pre-determined length of time, typically 1-10 years. If you need a lot of cash and don’t expect to be able to pay it all back soon, it might be your best option.
Securing a traditional loan can be challenging and time consuming. If your business is young or you lack collateral, it may be difficult to obtain a bank loan. Application requirements vary, but often include both personal and business credit histories, financial statements, a business plan and cashflow projections. A decision can take anywhere from a week to several months.
Business credit cards and lines of credit are good for recurring expenses and purchases you can pay off before interest kicks in each month. They can be relatively easy to get than most forms of small business financing options. With business credit cards, you can free up cash for less predictable needs, build your business credit profile and collect rewards like frequent flyer points or cash back for your business.
However, plastic can be an expensive form of funding when you go over such targeted uses and use it for things like cash advances. Credit card cash advance fees are often high, charging a higher APR or interest rate for cash advances than they do for purchases on top of the initial fees.
Peer-to-peer lending is becoming increasingly popular with Morgan Stanley forecasting the market for such lending to small businesses will grow to $11.4 billion by 2020. They’re great for fledgling businesses with near-term capital investment needs.
Peer-to-peer lenders can help match businesses with individual and institutional investors who take a commission for their involvement. You can often gain access to funding quickly and, because the platforms operate online and without the overheads of mainstream lenders, loans may have lower fees and interest rates than those offered by traditional banks. On the flip side, fees can be higher, and terms can be a bit more complex if the investment represents a bigger risk to the lender.
Crowdfunding sites like Kickstarter and Indiegogo let businesses pool small investments from many people instead of seeking out a single investment. There are a few different types of crowdfunding available, including:
Crowdfunding can be a good idea for financing new products but requires you to woo potential investors (it’s competitive out there!) and put some time into marketing and promoting the crowdfunding campaign. You should talk to an accountant about crowdfunding before starting, though, as money received through it may be assessable (taxable) income.
Balance sheet lenders have become more prominent in recent years and are a way to quickly meet short-term funding requirements. You can get a lump sum merchant cash advance for a portion of your future sales until you’ve paid it back. They typically look for business revenues and sales rather than credit scores when assessing your application so you can often receive the money within a day.
Because repayment amounts fluctuate with your daily sales, a balance sheet loan can have a gentler impact on cash flow than a term loan, but fees can be high.
A payment gateway, like PayPal, can offer financing programs to approved customers. These business or working capital loans are usually based on what they already know about your sales history and revenue.
Repayment is often similar to that of balance sheet lenders but they can offer more favourable terms. It can take a while to become eligible, though, as you’ll need to prove a strong sales history through the gateway.
PayPal Working Capital is a payment gateway loan that’s offered to PayPal businesses based on your sales history with us. Because we already know your business, we can offer up to 35% of your annual PayPal sales to a limit of $150,000 for your first and second loans, and $200,000 for subsequent ones. On approval, you receive your funds in your PayPal account right away and then start repaying three days later from a percentage (that you choose) of your sales.
Funding your small business is becoming increasingly easier as options grow but it’s an important decision that should not be rushed. Before applying for any business loan, make sure the offer truly suits your business needs and invest time into understanding the terms before accepting the offer.
Simply complete the form to receive valuable info and actionable tips for your business. Plus, you’ll hear from fellow merchants who use PayPal to help reach their goals.
We'll use cookies to improve and customise your experience if you continue to browse. Is it OK if we also use cookies to show you personalised ads? Learn more and manage your cookies