A small business owner smiling after getting approved for business financing

Types of Business Finance Options for Small Businesses: Which One is Right for You?

For many small to medium-sized businesses, financing is critical to success when their equipment needs outweigh their capital. 

If you sell products or services to other businesses, offering financing options will greatly benefit both you and your customers. Not only will you open the door to new opportunities for them, but you’ll also increase your sales by making your products more affordable.

However, there are many types of business finance options available, and choosing the right one to offer can be overwhelming. To help you out, here’s a quick guide on some of the most common business funding options today. 

What Is Debt Financing?

Small businesses pursue funding for various reasons, but perhaps the most common one is supporting business growth in operations, equipment, or marketing. In many cases, funding comes in the form of debt financing or borrowing money from a finance company or lending institution.

The main types of business finance options falling under this kind of funding include installment, revolving, and cash flow solutions. Debt financing is also either long-term or short-term.

Typically, long-term financing is for purchasing land, buildings, equipment, or machinery. Interest rates and fees are generally fixed, and repayment terms are usually three to seven years. With consistent scheduled monthly payments, businesses will find it easier to budget and fulfill payment obligations.

On the other hand, short-term debt financing often applies to daily business operations funding needs. Repayment usually occurs within one year, making this type of financing ideal for businesses experiencing immediate cash flow problems.

What Are the Best Financing Options for a Business?

Before offering payment plans to business customers, it pays to know the different types of business finance options and who would benefit the most from them. Here’s a brief overview of the most common types of financing for a small business.

SBA Loans

For many years, the U.S. Small Business Administration (SBA) has been aiding small businesses in getting financing for $2,000 up to $5 million. Instead of granting financing, they guarantee loans that participating lenders offer. As a result, SBA programs have low down payments, low-interest rates, and favorable terms. While interest rates vary by program and a minimum business credit score may be required, SBA loans are small-business friendly. The turnaround time may take 30 days to 6 months, but repayment terms extend from 5 up to 25 years.

Equipment Financing

This finance solution allows small businesses to purchase or lease equipment even without collateral. However, the equipment itself will serve as collateral. Compared with other types of business finance, equipment financing is solely to fund physical assets. One important advantage of this option is its relatively low APR and the lenient credit criteria. Additionally, this financing solution is tax-deductible and helps businesses build credit history.

Merchant Cash Advance

Merchant cash advances are good alternatives to traditional types of business finance. They work by giving business owners fast access to cash that’s basically lump sum funds with amounts ranging from $200 to $250,000. Then, they repay the advance within 3 to 12 months with a percentage of their future credit card sales. Although the lack of collateral requirements and flexible repayment terms make this cash advance very convenient, the APR can be quite high. Moreover, it’s mostly ideal for businesses with a high credit card sales volume.

Minority Small Business Financing

Instead of one particular type of financing solution for minority business owners, multiple finance providers offer many types of business finance options. Minority small business financing is typically for companies with a majority owner belonging to a minority group. Some examples of financiers that offer funding programs for minority business owners include the Business Center for New Americans (BCNA), the Business Consortium Fund Loan (BCF), and the Minority and Women Revolving Loan Trust Fund. The SBA also offers loan programs designed for minority entrepreneurs. It’s essential to do proper research on each program since requirements vary per financier.

How to Pick the Right Financing Option

Businesses apply for financing solutions for different reasons. Make it easier to choose a financing plan that fits their business objectives and situation by identifying their specific needs. You can narrow down choices by comparing requirements, interest rates, fees, and payment terms. By finding the best financing option, your business customers can get the funds they need to succeed through a payment plan that works for them.

Contact Clicklease to Get Started With Equipment Financing!

Get started setting yourself up for success by letting us evaluate your needs and discussing the different types of business finance and equipment leasing solutions for your customers.

Want to learn how Clicklease’s equipment financing could work for your customers and business? Contact Clicklease to speak with a sales team expert today!

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