According to Gallup, 36 percent of small business owners in the U.S. who have business debt are “very or somewhat” uncomfortable with their debt load, and almost half say that it is “extremely difficult” to reduce their debt burden. While financing a small business with one or several of the various sources available can help owners of small operations to add new employees, pay for new equipment, and cover other operational expenses, taking out too much and not understanding the intricacies of those sources can lead to financial trouble in the future, possibly even bankruptcy.
With that fact in mind, let’s take a look at some of the most common forms of small business debt.
Some Common Forms of Small Business Debt
Small company owners have many good options for financing their operations. This blog will cover the following:
- Small Business Credit Cards
- Small Business Lines of Credit
- Small Business Term Loans
- SBA Loans and Grants
Let’s jump right in.
Small Business Credit Cards
Many financial institutions offer small businesses this increasingly popular way to finance expenses. Small business credit cards are similar to consumer credit cards and give owners a flexible way to pay for the things they need now to make their business more profitable. Some offer travel incentives while others qualify small business owners for cash-back bonuses on certain purchases. In comparison with other financing options, business credit cards are easy to qualify for and obtain.
On the flip side, small business credit cards usually come with high interest rates and penalties for late fees. Some even require an annual payment just to hang on to the card.
Small Business Lines of Credit
Businesses also have the option to finance their operations with lines of credit. Lines of credit are not loans. They allow business owners to take on only as much business debt as they need rather than a lump sum. Accordingly, interest rates only apply to the amount that is borrowed, which can help business owners to curtail the amount they end up owing.
Small Business Term Loans
Business debt in the form of a term loan can be easy to obtain, and many don’t require collateral. Small business owners must pay back a term loan within a certain amount of time, sometimes as short as 36 months, and the APR often varies depending on the lender and the amount borrowed.
SBA Loans and Grants
Loans and grants from the U.S. Small Business Administration offer small operations some of the lowest interest rates available. There are many different types of loans that the SBA offers: general loans, microloans, real estate loans, disaster loans, and equipment loans. However, SBA loans can be difficult to obtain.
One of the most important things to consider when starting or continuing to fund a business is choosing the right type of financing for your situation. Making the right decision will ensure that you can get the money you need without jeopardizing the future of your enterprise. Contact us today if you’re having trouble making your payments.