Estimated reading time: 2 minutes, 29 seconds

When you own your own business, there may come a point when running your company requires you to spend a good chunk of change. Most start-ups and even successful enterprises may not have enough liquid cash to afford the price tag of equipment, goods, or real estate up front. You may need financing.

Avoid Credit Card Financing

As a small business, there are options for financing that you should explore well before you pull out a credit card. It’s too easy for the high interest rates associated with credit cards to run amok and sink your business.

First, the allure of 0% interest may sway you and seem like a no-brainer, but this is a mine field of explosive APRs that could trip you in the end. That 0% is usually an introductory offer that ends after a period of several months; after that introductory period ends, that APR can balloon. Most importantly, if you miss a payment, these types of deals often include a penalty APR that skyrockets into the upper 20%, as high as 29% in some cases.

Cash advances are another risky type of short-term loan available with a credit card. You can pull cash, like an ATM, from the account, but again, your interest rate on the re-payment will be sky-high compared to other financing options.

Better Financing Options

When it comes to financing, explore some of the lower-interest and safer means to get cash fast.

Loan. Loans are a good way to receive a lump sum of money quickly that allow time to pay back the principal with interest. You can also shop around to find the lowest interest between banks or credit unions, and sometimes, you may even find family members or friends willing to loan you money -- maybe even interest free. In some cases, you may even negotiate with the lender to help you with payments or re-finance your loan for a lesser interest rate.

Microloan. Intentionally designed as a resource for small businesses, a microloan can offer entrepreneurs and start-ups a real leg-up. These loans offer the advantage of borrowing small amounts, as little as $500, to meet the needs of new businesses trying to pay for fees or other expenses. However, they can also be larger, up to $50,000, for capital expenses. Also, microlending organizations offer lower interest rates and better repayment plans than the larger, traditional financial institutions.

Invoice Factoring. Depending on the type of your business, you may be eligible for invoice financing, or asset based lending products. If you have slow-moving accounts receivables, you can opt to sell those. Your business receives the cash up-front from the sale of an asset rather then accepting money for repayment with interest like a typical loan.

It is very typical for a small business to require a sudden influx of cash but consider your options carefully so that you don’t find yourself worse-off once you receive the money. Avoid credit cards and opt for financing options that work for and not against you.

Last modified on Monday, 22 April 2019
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