Financing Your Business

There are a variety of ways to finance your business and there are advantages and disadvantages to each. Making the right financing choice — no matter the size of your business — can provide major benefits down the road. Below are a few options — along with some pros and cons — to help you secure a path to financial stability.

Give yourself some credit

A credit card can seem like a good idea to small business owners. And it can be — when used responsibly.

A small business credit card means quick and easy access to a revolving line of credit with a set limit. You can easily track and monitor your spending and many cards include rewards programs that can benefit your business. However, like personal credit cards, small business credit cards tend to carry higher interest rates than bank loans or fixed lines of credit. And those rates can vary depending on how you use your card.

Here are a few rules of thumb:

  • Always pay the monthly bill on time.
  • Try to pay more than the minimum due.
  • Look for reward programs that offer redeemable points or airline travel miles to make the most of your purchases.

Borrowing from the bank

A line of credit is a great financing option, particularly for larger expenses. Credit lines often have higher line amounts and generally lower interest rates than business credit cards. And unlike traditional bank loans, you don’t have to take a lump sum of credit all at once. But remember, it’s still money that has to be paid back over the term of the line, generally several years. There are also upfront fees to consider when establishing a line of credit, such as an origination fee.

Consider a traditional, fixed-payment small business bank loan that provides a lump sum upfront. This gives you the money you need and a predictable payment to help you manage your cash flow. Just remember that interest rates tend to be higher for small businesses and most lenders require collateral to secure the loan.

Keep your paperwork handy

Regardless of the methods you choose to finance your business, financial institutions need to have a level of comfort with your business. You need to paint an accurate picture of both your finances and the stability of your business. The best way to do this is to stay organized. File away your tax returns and financial statements. Save your cash flow statements to illustrate your profits and losses. Also be sure to keep copies of all your business contracts. Most importantly, be upfront and honest about your finances.