You have enough experience with mortgages and car loans to understand where consumers go when they need to borrow. But what about companies? What about the small businesses in your neighborhood? They have financial needs from time to time, needs that require borrowing.
You could make the case that companies have more borrowing options than individual consumers. If that’s the case, it is because they have so many assets compared to consumers. With more assets come more opportunities to borrow.
At the end of the day, it all boils down to how much money a company needs and what it intends to do with that money. Below are some of the more common borrowing options companies rely on:
- 1. Small Business Loans
The first option that comes to mind is the small business loan. Most companies are familiar with these types of loans. They are made by banks but usually backed by either federal or state loan programs.
Small business loans are tough to get for startup funding. But for funding growth and expansion, they are a frequent choice among small business owners. They tend to offer competitive rates and reasonable terms.
- 2. Hard Money Loans
Some business needs cannot be covered by a small business loan. Likewise, there are some needs that small business loans would cover yet are better served with hard money. Hard money comes from private lenders via an asset-based model.
According to Actium Partners, a hard money lender based in Salt Lake City, UT, companies often take advantage of hard money to expand their operations. They sometimes use hard money offered as a bridge loan to pay off existing obligations while arranging new credit.
- 3. Business Lines of Credit
A business line of credit is similar to the consumer line of credit many people have attached to their bank accounts. This is a form of revolving credit that allows the business to continually carry a certain amount of debt as long as monthly payments are made on time.
- 4. Business Credit Cards
Believe it or not, credit cards are a form of borrowing. When you pay with a credit card, the credit card company or bank sends money to the business from whom you purchased it in order to cover that transaction. You then pay back that amount through monthly payments.
It turns out that businesses have access to credit cards, too. Business credit cards often come with perks consumer cards do not offer. As for interest rates and terms, they are pretty similar to their consumer counterparts.
- 5. Invoice Financing
When companies need quick access to smaller amounts of cash, they may turn to invoice financing. Also known as invoice factoring, this particular tool doesn’t technically qualify as borrowing. But it’s close enough. Companies sell unpaid invoices to a factoring company. When those invoices are paid, the factoring company collects. They make their money by charging a fee for their service.
- 6. Crowd Funding
When all the traditional methods of borrowing are off the table, there is always crowd funding. This is a scenario in which a company pitches its need on a crowd funding platform. Interested consumers contribute whatever amount suits them. In exchange, they either earn a financial return or get exclusive access to a new product, service, etc.
Companies of all sizes borrow money just like the rest of us. How they borrow depends on their needs. Suffice it to say that there is an option to accommodate just about every need a company might have. So much so that companies tend to make use of multiple options at any given time.