Almost all businesses that fail go under because they lack access to funding. Conversely, successful businesses succeed because they understand how to tap into affordable funding to allow low-interest rates and realistic debt. The money is yours for the taking if you know how to look for it.

There are a variety of business loans that are available to small businesses. Some of these loans are available to every type of business, and some are business-specific. Therefore, it is crucial to identify what loan options are available to you as a business owner. It is also important to know what steps you need to take to qualify your business for funding with these different types of loans.

Business Bank Credit

The most desirable loans are business bank credit (aka revolving lines of credit/bank line of credit). These loans are available to your business with a direct banking connection. Direct banking connections are the establishment of your banking account. These are great for businesses that need to cover the costs of payroll or inventory. Think of this option as the crown jewel of funding. Funds are awarded based on how long you’ve banked with the organization, average balances, and the money’s intended purpose.

Bank credit is desirable because it operates as a home equity line of credit does. It’s open and available; you only get charged interest on what you use. This option is much like a credit card in that interest is only charged on the amount you use. Interest rates range from 7-12%, depending on your business’s creditworthiness. Once you do know your interest rate, there are no hidden fees. If it’s not known as a revolving line of credit, you will likely be charged interest on the total amount versus only the amount you use.

MCA Loans

Type in business loans on a Google search, and you’ll find a myriad of people that claim to give loans to small businesses. Most of these are merchant cash advance loans or MCAs. These pop up first because almost any business can qualify for these if they take credit payments. These are essentially pay-day loans granted based on your processing history. They loan a percentage of your monthly processing amounts. MCAs target quarterly income, give you a loan with an extremely high-interest rate and are directly attached to your bank account. It hurts your business because you have an incredibly high-interest rate, and you must pay it back quickly.

Dangers of MCA Loans:

These lenders, in our opinion, are predators, and you should try your best to steer clear of these loans. MCA loans require that your business processes sales of your products or services through a merchant account. A merchant account allows your business to take credit or debit cards as a form of payment from your customers. Therefore, these loans directly correlate to the amount of money your business processes in credit or debit card transactions each month.

These lenders are willing to lend you up to three months of your total monthly transactions. The problem with these loans is that they prey on the desperate business owners who need cash fast by offering quick funding but charge very high-interest rates. They also advertise that you don’t need good personal credit to qualify for them. These lenders attach themselves directly to your merchant processing accounts and can now withdraw money from your account. If they tap into your account, they can take the money directly from your account. Companies usually never anticipate the need for funding until it’s too late. Set yourself up to access the money before you’re cornered into a bad loan situation.

SBA Loans

Small Business Administration (SBA) loans have better interest rates than most. Still, it’s a loan that gets deposited immediately into your account and you immediately begin paying interest on the total amount. SBA loans are set up with the government. Like with tax breaks, the government offers advantages to help the economy. These are created with low-interest rates with terms up to 30 years. Be aware that whatever amount you achieve in a loan, you will pay interest on the total amount. Use these to purchase a building, equipment (fleet of vehicles), machinery, tools, and anything you need long-term to float your business. The payments will be lower because the loan is long-term.

SBA.gov is an excellent resource for researching small business loans offered by the government.

Propel advisors can help you determine if this loan is right for your business and when it would be most advantageous to go after a loan such as an SBA loan.

Vendor Lines of Credit

Vendor lines of credit are available to specific businesses (restaurants, construction, any manufacturing or product trades) – great for supply chain vendor lines of credit. These operate with a credit limit on a revolving timeline of 30-60 days (float period). Allow your business time and funds to bring in the necessary products to run your business. These are specific to the vendor providing the supplies or materials.

Talk to Propel to make sure you’re pursuing the right vendor lines of credit for your specific business. We can create a funding plan to achieve the best funding path for your business with the lowest interest rates.

Different types of vendor loans are available to businesses looking for products, materials, or supplies.

Credit cards are an excellent option for businesses. We recommend using at least three to four credit cards for your business to have the option of using the stacking method, not only to take advantage of the 0% interest rates, but also to strengthen your business credit profile. Give yourself long-term and short-term security in knowing you have access to funding when you need it most.

To better understand the loan options available in your specific industry, contact Propel to fully explore the possibilities for a short and long-term funding strategy.

How to Prepare to Qualify for Loan Applications

How you prepare will depend on your business type. Preparation is the best time to ask for business lines of credit. No matter which type of loan you choose, it is wise to have financial documentation (bank statements and tax returns) and a business plan ready. Once we’ve accomplished phase 1 of funding, you will run your business with the mindset of improving with the next round of funding. Always be in the mindset of seeking more options and higher limits. Capitalize on any opportunity to strengthen your credit profile and open up new funding opportunities.

We’re always here to help you find the best option for your business. We can comb through the fine details and offer funding guidance. You don’t need to be alone in the funding process. In a world with thousands of lenders, we can help you determine which option will most benefit you. Propel is here to offer the help we would’ve wanted when we first started our businesses. We strive to be a business incubator for new business owners that need a framework and the right support to succeed.