About one in three business owners say they use their own funds or personal credit for their business, according to a recent Wells Fargo/Gallup Small Business Index survey. Yet as a business seeks to grow, obtaining business credit is essential and can help finance purchases, build a credit history, supplement cash flow and preserve savings.
So how do you choose the right credit solution for your business? Not all financing options are created equal. The type of business credit you need depends on your business goals and how much funding you need.
Following are several common credit needs of small business owners, and solutions available to address each one:
Need a way to pay for everyday business expenses? When a business owner is looking for a convenient way to pay for everyday business expenses and a smart alternative to cash, checks, and personal credit cards, business credit cards can be a good solution.
With a business credit card, business owners can separate their business from personal expenses and immediately pay for day to day business expenses. Businesses also can obtain multiple cards for employee use. There are many business credit cards on the market, so it's a good idea for business owners to research their options, and evaluate card features ÔÇô from fees to spending controls to rewards ÔÇô to find the one that best fits their needs.
Need to make large seasonal purchases or cover payroll? Nearly every small business will face a time when it needs more cash than it has on hand. A business line of credit can provide fast, easy access to cash, which can bridge gaps in cash flow, and help supplement cash flow for business expansion, taxes, insurance, or other expenses.
Both unsecured and secured credit options are available. For unsecured credit solutions, the most common type of credit, a business owner typically borrows based on personal and business credit history and cash flow. Secured credit solutions are another option that can help newer businesses establish business credit and assist businesses that may need to rebuild their credit. With a secured credit solution, the cardholder or borrower uses a deposit account or assets as collateral to secure the credit.
Want to expand your business or make a large equipment or vehicle purchase? For a specific business need, business term or equipment loans should be considered. Loans give businesses immediate access to funds and are ideal for business owners who want a flexible way to get a lump sum at a fixed or variable interest rate for a fixed period of time. There are many types of loans, including unsecured loans, secured equipment loans, real estate loans and vehicle loans, and rates and terms vary.
When evaluating lending options, you should also consider an SBA loan. Through government-guaranteed SBA loans, financial institutions are able to extend financing to a segment of creditworthy small business owners who may not be able to obtain a conventional loan or loan terms that meet their business needs.
Business owners who are looking to buy real estate, acquire a new business or purchase equipment may find that an SBA loan offers more flexible terms than a conventional loan. SBA products include the SBA Express line of credit, and SBA 7(a) and SBA 504 loans.
Every business has unique needs and goals. As business owners consider their credit options, they should consult with a banker to determine the best solution to meet the specific needs of their business.