Business Guides

5 Financing Options For Your SMB

Last updated on December 29, 2020

Jacques Famy Jr

Small to medium-sized businesses (SMB) rely on financing options, loan opportunities, and advances to succeed in their competitive marketplaces. Unfortunately, traditional lending institutions and banks focus heavily on larger enterprises, leaving SMBs empty-handed for their cash flow needs.

However, that doesn’t mean small to medium-sized businesses are out of luck, as there are plenty of opportunities in the online marketplace to take advantage of today.

Let’s Cover Some Basics

Your SMB funding can essentially fall into two camps.

  1. Debt 
  2. Equity 

Debt financing refers to business loans and occurs whenever a company receives money from a lender for business needs such as working capital, renovations, expansion, real estate, equipment, and more. Some business loans are secured, meaning they require collateral such as assets.

On the other hand, equity financing is where a business provides a percentage of the company in the form of shares for the cash flow they need now.

Before You Get Started

Diving into the expansive world of SMB financing can be daunting, so before you start researching various options for you, there are some questions to answer.

1. Why Do You Need It?

This can include the amount that your business requires and the reason for the financing solution. It will help if you have a firm grasp of how much capital will put you in a successful position. Additionally, knowing where the cash flow will go can help you plan other areas of expenditures or business needs.

2. When Do You Need It?

If you require immediate cash flow, some financing options may be out of reach, as they take a while to get approved. However, some loans or funding solutions take as little as 24 hours to get approved. So, by knowing when you need capital, you can eliminate certain options from your research pool.

3. What’s Your Current Financial Situation?

There are a few requirements needed to get approved for SMB loans, so knowing your financial standings can help narrow your list. Some of these include:

  • Credit score
  • Time in business
  • Type of business
  • Revenue
  • Tax returns
  • And more

So, now that you have some basics down and know the whats, whens, and whys, let’s hop into X financial options your small to medium-sized business can take advantage of today.

5 Financing Options Your Business Can Rely On

1. SBA Loans

The Small Business Administration (SBA) assists small business owners grow their companies through a wide range of loan opportunities. While the SBA is not a lender, they do offer guarantee programs that mitigate the risk for accredited lenders so that small businesses can receive the funding they need. These are extremely sought after loans that have low-rates and long-term funding options. Three of the most popular forms of SBA loans include:

  • 7(a) Loan Program
  • Small Business Microloan Program
  •  CDC/504 Loan Program

2. Short-Term Business Loans

A short-term business loan is a lump sum of capital offered to a company for a wide range of business needs. Many businesses utilize this cash flow for working capital, equipment purchases, expansion, and more.  Short-term loans are far easier to obtain compared to other financing options on this list, as the repayment period is much shorter and the amount is typically less.

Short-Term Loan Breakdown:

  • Rates: Factor rates from 1.09% up to 1.35%
  • Terms: 6 to 18 months in duration (typically 12 months or less)
  • Fees: Origination Fees from 0% to 3%
  • Payments: Weekly, Bi-Weekly and in some cases daily Monday-Friday
  • Credit Standards: All credit types considered
  • Processing Time: Fast Funding: Same day funding up to 24 hours

3. Lines of Credit

Business lines of credit are an extremely flexible solution that a financing option resembles a credit card. Business owners can draw money from an established credit line and pay interest rates on balance owed. It’s a simple, flexible, and revolving solution that is perfect for seasonal operations or those that may struggle with unforeseen hurdles.

Lines of Credit Breakdown: 

  • Rates: Depend on the borrower’s credit but are typically 6.99% and up
  • Terms: Repayment terms over 12 months
  • Fees: None
  • Payments: Flexible cash when you need it
  • Credit Standards: All types considered

4. Invoice Factoring

For businesses that rely on invoices, outstanding or late payments can have a significant impact on cash flow. Luckily, invoice financing offers a sound solution and can be a great alternative for those struggling with poor credit histories. You’re able to leverage outstanding invoices for instant cash flow in exchange for small processing and factor fees. For many SMBs that struggle with finding funding, invoice financing is a great option.

Invoice Financing Breakdown:

  • Deal size is $100k to $10 million
  • The advance rate is 80%- 85% (can do 90% for staffing and trucking)
  • Pricing depends on the volume
  • Terms can go out 120 days and exceptions to 150 days

5. Merchant Cash Advance

Another sound solution for business owners struggling with credit scores, merchant cash advances are a great way to receive funding fast. Through a merchant cash advance, you’re able to sell a portion of future credit card sales at a discount for instant cash flow.

  • Rate: 1.10% up to 1.45% Factor Rate (This is not an interest rate)
  • Terms: No term limits estimated payback periods are 6 to 18 months
  • Fees: Typically 1% to 3% Origination Fees
  • Payment: Set percentage of future card volumes
  • Credit Standards: All business credit types from Poor to Excellent is considered. Not score driven.
  • Documents: One-page Application, merchant account processing statements, business bank statements

Discover the Financing Option for You

SMBs used to be left behind when it comes to financing solutions, but now there’s a whole host of alternative funding options that you can take advantage of today. Lenders are taking the online marketplace by storm, and finding a great partner to help establish, grow, or boost your company’s success is only a few clicks away.

Regardless of the loan or financing option that you decide on, make sure to do your research and weigh each’s pros and cons. Moreover, never stop building upon the foundational requirements for obtaining a business loan or funding solution. This includes growing your business credit and maintaining all of the financial documentation needed to get approved for SMB financing.

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* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.