What to Know About Small Business Loans

Many small businesses (whether they already exist or are still in the planning and development stage) realize the need for financing and cash flow. Whether it is to get the business off the ground or to help pay for initial inventory, facilities or even employees; many businesses will have a need for supplemental cash flow through small business loans or other means.

A good credit score and business plan are almost always required to receive a small business loan. And depending on the size of the loan, collateral may also be necessary. If you do not own a home or other valuable property, it may be difficult to secure a small business loan. All is not lost though; as an alternative to the traditional small business loan, one possible choice for merchants is to borrow against credit card receivables.

For those who are not familiar with this process, here is how it works: the lender will purchase a portion of a business's credit card transactions (Visa and MasterCard only) at a reduced price. Then they'll retrieve a set amount from the businesses daily transactions until the cash advance is repaid. It is a straightforward process and the merchant is free from having to rely on traditional loans and credit worries at a time when collateral or cash flow may be limited.

We all know cash advances on our personal credit cards can be very expensive...the interest rates are extreme, the fees for obtaining the cash are substantial, and there may be additional charges by the bank or institution actually providing the cash. Does that make this a bad idea for a small business? Not necessarily. Given the credit crunch of the past few years, lenders have stiffened the business loan criteria and some businesses may not qualify. If a business does qualify, it may be that the terms or repayment plan is less than desirable. The option of acquiring additional investors can prove far more expensive in the long run also, so in these cases, an advance against receivables is a good option.

The benefits of not having fixed payments due each month can be a lifesaver for a small business! This can ease a business-owner's mind while improving cash flow for other needs, including bigger facilities, more employees or emergencies. When the repayment is deducted automatically from credit card transactions, it's almost invisible; the payment is made without your every taking control of that money.