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The who’s who on small business lending
By DBL | May 12, 2013
Welcome to the eBayAnorak’s guest poster Camilla Gilbro. Camilla is the community manager at iwoca. Since graduating from Copenhagen Business School, with a degree in business communication, Camilla has been working to make life easier for small and medium enterprise businesses by offering advice and sharing experiences via entrepreneur magazines and websites. She loves a good chat about anything, from business plans to social media. Today she talks about the who’s who in small business lending …
Small business loans, business funding, working capital and quick cash loans? The terms are many and they may not always be easy to understand. So which is which and more importantly, how do you know which is right for you?
I’m going to start out by giving you the worst answer ever. It depends. As always it depends on the situation and even within the same business it may vary. So let’s take them one at a time… While there are many more than this article covers, the terms covered below should be the most relevant for you.
When you’re considering what type of loan to take out there are two things to consider. Where can I find capital and what do I need it for?
Bank loan: taking a bank loan is probably the first thing many businesses think of when they’re in need of capital. While many small businesses are finding it extremely difficult getting capital from their banks in terms of loans, an overdraft facility can turn out to be a good idea. To some having an overdraft facility equals bad finances, but that doesn’t have to be the case. In fact, having access to the overdraft can remove some cash flow restraints from your business. Remember, the overdraft is not there for you to use it all the time, but can become extremely valuable in some situations.
Quick cash loan: Also known as pay day loans. Pay day loans are known for their extremely high interest rates and not necessarily very favourable terms. Taking a quick cash loan for your business is something you need to consider a lot before going into. Have you checked that all other options are ruled out? Are you sure that you can pay it back and that the cash will actually benefit your business?
Small business loan: a small business loan can vary a bit, but usually refers to small loans for small businesses, i.e. no more than £15,000-£20,000. Some banks offer small business loans for start-ups, provided you have a decent business plan and a proper budget in place. This is a good idea to have in any case, to make sure your business will be sustainable if it works out the way you hope.
For online sellers there are now other opportunities. Several companies are starting to specialize in niche sectors of the market, providing business loans tailor made for that specific industry. Benefits can be easier access to cash and a better understanding of your business. However, be aware that most of these loans will be short term, i.e. for no more than six months. Therefore, it’s important that you make a plan for the use of the money before taking them out, considering how you can maximize your profit within that period of time.
Business funding: Business funding often refers to outside funding, either in terms of investment or just plain financial help. To gain outside funding can be quite difficult in the sense that it takes a lot of work and some luck as well. You should have a very creative approach, or it will be practically impossible. Here you should consider whether the work is really worth the capital, obviously depending on the amount of money you’re after.
Government funding: Governments around the world have set up schemes to support start-ups in order to boost the economy. Depending on your country of residence you will probably be able to get access to a small loan to help you start your business. However, most of these loans are for start-ups only and not created to help established businesses grow.
Before you make a decision, do research
Companies will happily talk to you and tell you about their product. It’s important that you take your time to figure out which is the right way for you and the way to do that is by looking around, talking to different companies and consider the different benefits in accordance with your business needs.
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