Last Updated on Apr 8, 2020 by James W
Every business needs that extra boost of income from time to time, whether it’s to start things off initially or to cover emergency repairs. Borrowing money for business purposes can be very different to personal borrowing – you may have to prove the stability of your business to lenders. Like any form of borrowing, you can expect to pay interest rates, which you’ll want to try and lower. Here are several ways to get the best deal when borrowing money for your business.
Business bank loans
Your local bank is likely to offer business loans. These may have good interest rates and the amount you can borrow may be capped high. Taking out a bank loan is usually a lengthy process – you may not get your money for a few months making it unsuitable for emergencies. You’ll need to take documents with you and proof that you have budgeted a business plan if you’re hoping to fund a startup. Bank loans may also require you to have a good credit score. It’s possible to use a loan broker to help you find the best deal.
Peer-to-peer lending is a new online method of borrowing. You borrow money from other online users who make money back through interest like an ordinary lender. Interest rates can be favourable if you have a good credit score. Applying for such a loan is generally fast – it’s all done on line and depending on how fast you’re paired with another user, you could have your money in minutes. Peer-to-peer lending might not be so effective if you have a bad credit score as you can sometimes be charged higher interest than other forms of loan.
A revolving line of credit is a different form of borrowing in which a company lends you money in an account which you can dip into as you please. You only have to pay back the money you take out from this account – if you only use half the money you borrow, you only have to pay back half. Like other forms of borrowing, interest rates apply. Revolving credit can be ideal if you want to make lots of small purchases but aren’t sure of exactly how much these purchases will cost in total.
Business credit cards
You could also take out a business credit card. This allows you borrow instantly as you please, sometimes with favourable interest rates (some cards may have zero interest for the first few months). Of course, credit cards do require very responsible spending habits – it’s all too easy to keep flashing the plastic and end up in big debt.
Do you owe money from clients – money that could be a great help to your right now? If you’re unable to demand it from your clients, you may be able to get an invoice factoring company to cover you for the money owed. When eventually you are paid the money you owe, this can then be paid to the invoice factoring company. Many business owners like this form of borrowing as essentially you’re only borrowing money that you would have earned anyway – it’s simply a ways of speeding up the process.