Sources of Finance Medium Term Borrowing

  Reviewed by: Jayne Thompson, LLB, LLM
  Written by: Andra Picincu      Updated November 28, 2018
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Growing your small business takes time and money. Whether you want to purchase new equipment, invest in the latest software or expand your operations, it's not going to be cheap. More than 41 percent of entrepreneurs are unable to grow their business due to lack of capital. With some planning and research, you can secure financing. Commercial banks, private lenders and revolving credit are all worth checking out.

Reach Out to Commercial Banks

Small businesses borrowed $600 billion in 2015. Depending on your needs and goals, bank loans can be a viable option, especially for short- and medium-term financing.

Commercial banks can finance equipment purchases, real estate investments, working capital and more. Most times, they will require collateral, which usually comes in the form of personal guarantees. Don't expect too much flexibility, though. You'll likely need to use the money for a specific purpose and abide by certain restrictions.

Loan requirements vary from one bank to the next. Lenders may check your credit score, net operating income, personal debt-to-credit ratio and annual revenue. If you've been doing business for less than a year, you may not receive the money you need. Additionally, you may need to specify how you plan to use the funds.

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Be prepared to provide a lot of paperwork, including balance sheets, income reports, revenue forecast reports, business bank statements, payroll records and more. The factors listed above will determine how much money you can borrow. Most banks require companies that apply for loans to earn at least $50,000 a year. However, some are more flexible and may offer financing options for small businesses. A medium-term loan is typically three to five years.

Apply for an SBA Loan

The Small Business Administration provides loans through a network of more than 800 lenders. Compared to bank loans, SBA-guaranteed loans have lower fees and interest rates. Some also include access to educational resources and support for small businesses. Entrepreneurs can borrow $500 to $5.5 million, depending on the lender's requirements.

To qualify for this type of loan, you must run a for-profit business incorporated in the United States. Additionally, it's necessary to prove that you've already used all financing options and invested equity.This means you've already applied for financing but haven't been successful or that you don't have the personal or business assets to sell for covering your expenses.

Search for local lenders that are familiar with SBA programs. The application process is similar to that associated with traditional bank loans. Another option is to visit SBA.gov and find lenders through Lender Match, a free online referral platform. After you answer a few questions about your business, you'll get matched with potential lenders within two days. Then you can discuss your needs with them and submit your loan application.

To find out more about SBA's services, look for Small Business Development Centers in your area. The experts who work at these centers provide assistance with loans, manufacturing, business plan development, market research and more.

Before applying for an SBA loan, make sure you have a strong credit record, a solid business plan and some form of collateral. You must also prove that you have experience in your niche and specify how you intend to use the funds.

Find Revolving Lines of Credit

With a revolving line of credit, lending institutions grant a maximum credit limit that customers can use anytime for any purpose. To enjoy this benefit, borrowers are required to pay a commitment fee, which represents either a fixed amount of money or a fixed percentage of the loan. As a small business owner, you will need to provide a statement of cash flow, income statements and balance statements.

In addition to external sources of financing, small business owners may use their own savings, sell the company's assets, reach out to angel investors, or use any profits that haven't been reinvested. Peer-to-peer lending is an option, too. Contact a tax advisor or small business consultant to help you make an informed decision.

About the Author

Andra Picincu is a digital marketing consultant with over 10 years of experience. She works closely with small businesses and large organizations alike to help them grow and increase brand awareness. She holds a BA in Marketing and International Business and a BA in Psychology. Over the past decade, she has turned her passion for marketing and writing into a successful business with an international audience. Current and former clients include The HOTH, Bisnode Sverige, Nutracelle, CLICK - The Coffee Lover's Protein Drink, InstaCuppa, Marketgoo, GoHarvey, Internet Brands, and more. In her daily life, Ms. Picincu provides digital marketing consulting and copywriting services. Her goal is to help businesses understand and reach their target audience in new, creative ways.

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