When starting a business, there can be a lot of things to think about, even before your business actually gets going. One of these things is often finding the right kind of financing for you and your business. While this may seem like a challenging task at first, the reality is that with a little research it can be possible to make the right choice for you.
Lines of Credit
One kind of financing option that many small businesses go with are lines of credit. A line of credit is a type of loan that is also similar to a credit card, in that it is a form of revolving credit. With lines of credit a lender will provide you with a credit line, and you will be able to spend as much or as little as you need to, up to the predetermined limit. You will then be expected to repay whatever you have spent with interest.
Invoice factoring is a kind of financing that provides you with funds as an advance against slow-paying receivables. This kind of financing tends to be popular with newer companies, as well as companies that are still growing and may not be able to qualify for a traditional loan or a line of credit yet. Technically, invoice factoring is actually not a loan, but rather is structured like a sale. With it, you sell your invoices to an institution in installments, minus a fee.
The term “asset-based loan” can often describe a loan that covers many things, from equipment to real estate. Also, an asset-based loan can be similar to both lines of credit as well as invoice factoring. Like a line of credit, you will be provided funds that you can withdraw from as you need to, up to a predetermined limit. However, unlike a standard line of credit, with an asset-based loan the limit you are provided will be based on the receivables you are holding. An asset-based loan can be a good in-between option for those that would like something that goes beyond invoice factoring, but are not yet able to qualify for a line of credit.
The Bottom Line
When you start a business, there can be a lot of things to keep in mind, even before your business actually starts. While this may seem overwhelming, the reality is that it can be easy to choose the right financial path for you with a little planning and research.