Financing involves the provision of funds for any business activity, making purchases, or investing.
There are two types of financing:
With equity financing, your company is no longer solely yours. Besides, you don’t have to pay back the money in case your business enters bankruptcy.
It is cheaper and comes with tax breaks. The lender has no ownership or control over how you run your business.
Different Financing Options and Loans
Here is a guide on business financing options you should know about whenever seeking funding for your small business.
Bank loans and SBA loans
Credit card financing
Business line of credit
Merchant cash advance
Purchase order financing
What Makes A Good Affordable Loan?
Not considering the type of loan you choose from, you should know what makes an excellent affordable loan. After your credit application has been approved and the loan disbursed, you are required to start making monthly payments.
An excellent affordable loan should have fixed interest rates. It means that your payments will not change but will stay the same every month.
How to Improve Your Chance of Getting a Good Loan
Winning approval for a personal loan application has no specific formula. There are requirements such as income and credit score that vary with a lender. However, all these lenders require you to pay your loans on time, meaning that they approve borrowers that meet their requirements.
Here we have elaborated some tips that can improve your likelihood of getting a good loan:
Clean Up Your Credit
It is good to always get and check your credit reports at AnnualCreditReport.com once a year. If there are errors in your reports, dispute the errors online by phone or in writing. Some of the frequent errors that may hurt your credit score include closed accounts reported as open, incorrect credit limits, and wrong accounts stipulated by the Consumer Financial Protection Bureau.
In addition, you can also request a credit limit increase. Contact the customer service numbers and ask for an increase. If your income has risen, you will have better chances of increasing your credit limit.
Find the Precise Lender
Most lenders (bedriftslån) tend to unveil their most minor requirements for yearly income and credit (kassekreditt) scores. If you meet these minimum requirements, it is best to see estimated terms and rates as you can prequalify for financing.
You can prequalify with several lenders. Besides, compare terms and rates. The best loan option should have payments and costs that fit suitably into your budget (likviditetsreserve).
Rebalance Your Income and Debts
It is good to start a side hustle to supplement your income. Nevertheless, you can work towards a raise at your full-time job.
Lowering debts and boosting your income is vital in improving the debt to income ratio.
Pros and Cons of Debt Financing
Debt financing has got its pros and cons. Let’s start with the pros first.
Pros of Debt Financing
These are the advantages of debt financing:
It helps you maintain ownership of your business
Offers alternatives for repayment and collateral options
Interest is tax-deductible
Debt obligations can be predicted and planned
Lenders do not have claims on future profits
Cons of Debt Financing
Cash flow difficulties
It has effects on your credit rating