For a new business, it’s sometimes advisable to get a Small Business Administration (SBA) loan. This often comes into play when a business has less liquidity for a down payment, or the repayment term needs to be longer than what a bank can traditionally provide.
To start any discussion on what the right financing option is for a business customer, I always ask three main questions:
- How old is the business (and will there be accounts receivable to review)?
- What will the money be used for?
- What collateral is available for the loan, if any?
Real estate: When you’ve decided it’s time to purchase a building or property, you can expect the mortgage to require a down payment of 20-30 percent of the acquisition cost. Your interest rate will be based on both the economy at the time and your credit.
Equipment financing: The extent of financing available will depend on how long you’ve been in business. If you’ve been in business for three or more years, you could get 100-percent financing for certain types of equipment.
Lines of credit: This product is generally used for funding gaps in working capital. It enables you to pay expenses when you’ve not yet been paid by a client or customer and is typically used for inventory, supplies, materials or even payroll. At a minimum, any lender will need a lien on company’s inventory and accounts receivable.
Credit cards: Ideally used for smaller expenses, credit cards are great in a pinch and can make smaller emergency costs easier to handle. However, though most don’t require the entire balance to be paid in a month, it’s in the borrower’s best interest to pay the balance down as quickly as possible.
Purchase card: This option works as a way to float your money for 30 days or more (depending on how the card is set up by your bank) to cover the cost of any expense on a short-term basis. Unlike a credit card where you can carry a balance with a minimum monthly payment, you pay in full when your purchase card bill is due. It’s especially popular for businesses who make significant purchases from multiple vendors, some of whom may give discounts or rebates for using a purchase card.
MEET THE EXPERT
Dana Moore is a Vice President, Commercial Loan Officer for Valley Bank based out of the Montgomery main office. She has been in the small business banking industry for more than 28 years, helping businesses grow. Contact her at 334-270-3006.
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