2020 has been a rough year for small business owners due mainly to the COVID-19 pandemic. Nonetheless, there are plenty of reasons to be optimistic about 2021: A vaccine will be available this year, there is another round of paycheck protection programs, and lenders are back to business.
According to a recent survey, 67 percent of small business owners said they are confident that their business will return to its pre-pandemic operations and revenue this year. Around 60 percent of small business owners agree that the U.S. economy will be favorable in 2021.
However, this optimism does not mean that everything will be back to normal for all typical small business owners. Millions of businesses have suffered during the pandemic. Even many are forced to close down their operation forever. For those still surviving, here are plenty of financing options to look forward to in 2021.
Small Business Financing Options
Over the years, online lending has become a popular alternative to traditional business loans. One major advantage of this type of loan is speed. The application process only takes about an hour to complete, and just within days, you will receive the decision and the accompanying funds if it is approved.
Plenty of business owners have used this financing method to provide money for their business. Nonetheless, online loans can be very costly ━ , which is not good if you plan on getting jumbo loans. And, online lenders only finance businesses that have been in operation for at least one year.
Business Credit Cards
Business credit cards are a good financing option if you need money for your startup. If you only need less than $50,000 for capital and cannot secure a loan, credit card companies might provide you with cash. In fact, over 65 percent of small businesses use credit cards regularly.
Keep in mind, though, to get a small business credit card as it is best to keep your personal and business finances separate. Keep your balance below the 30 percent credit limit, and make sure you only use your credit card for essential business functions.
Equity financing is a financing arrangement that involves giving up a share of ownership of the business in exchange for operating capital. If you have a business idea and have no money to start it up, nor a good credit history, why not consider a partnership with someone who has the cash to invest in the business?
There are two major advantages for this type of business financing: One, there is no loan that needs repayment. Two, there is no need for you to be creditworthy. Nonetheless, having a business partner means ceding some control over your business and profit-sharing.
Grants are financial assistance given to businesses to help them grow and expand. The government usually gives out grants to businesses that focus on science and research. However, businesses that win these grants must meet federal research goals and have high commercialization potential.
One major advantage of grants is that they do not have to be repaid, unlike business loans. Furthermore, winning a grant enhances business prestige. Unfortunately, though, there are not many grants available, making them difficult to secure. Winning a grant comes with strings attached as well from the donor.
If your small business is known to manufacture specific commodities and have a good market reach, pre-selling your commodities to buyers could help you finance your company. In this type of arrangement, you will receive advance payments from your buyers, and you deliver the commodities on a future date.
Pre-selling is a good way to keep your business liquid until it is actually earning money. Apart from not worrying about interests and losing business control, all you have to make sure is that you deliver the agreed commodities to your customers when the time comes.
What if You Decide to Get a Business Loan
You can essentially secure business loans for anything related to your business. But before you secure any business loan, make sure you have a business plan with financial projections laid out. Also, make a plan on how you are going to repay the loan. Even established names do this. If you do otherwise, you leave your business in a huge financial dilemma.
When shopping around for small business loans, there are certain factors you need to take into consideration.
Factors in Selecting the Best Small Business Loan
- Credit Score
- Repayment Terms
- Interest Rates
- Loan Amount
- Type of Loan
- Type of Lender
- Additional Fees
All these factors are crucial to help you land the best business loan for your company. Whether you are planning on securing a $5,000 or a $5 million business loan, this list will hopefully help you.