Making sense of business funding can be a bit tricky, considering the number of financing options available. Therefore it is important for small business owners to carefully consider each financing options from the array of business funding strategies and evaluate their features before putting pen to paper.
Traditional bank loans, business line of credit, Merchant Cash Advances, Loans from the Small Business Administration, and Crowdfunding are some of the many financing options available to small business owners. Other funding strategies available to businesses are borrowing from friends and family, Business Grants, invoice factoring, and selling equity.
Top Factors to Consider When Choosing Business Funding
Will the lender pull into the business owner’s personal credit?
It is worth noting that some lenders rely on the borrower’s personal credit to approve the loan application and even penalize the borrower by reporting issues to the credit bureaus in case of default. Such products include lines of credit, invoice factoring, and term loans.
Will Customers be contacted?
Options like invoice factoring give borrowers up front for unpaid invoices and sometimes require customers to pay them back directly as opposed to paying the business. Consequently, it is worth considering whether or not interference with a third-party is desired as it could lead to an uncomfortable conversation with the customer.
What are the fees charged?
Origination fees, subscription fees, maintenance fees, and prepayment penalties are some of the fees that every borrower should look out for, especially as they are sometimes not written in black and white.
Will there be a debt spiral?
Some financial products allow borrowers to extend their debt past the final term period. Usually these products add fees to the interest already owed, which can create an ever-increasing debt that can be very hard to pay down.
These questions are some of the many factors that every borrower should consider before deciding on the most suitable funding option.