PrintQ: What types of loans can my bank offer to improve my cash flow?
A: There are many types of loans that can help you with your cash flow needs. Whether you’re looking to obtain new equipment, finance business expansion, or buy inventory, you can make it happen. Here are a few ways your bank can help:
- Corporate credit cards: One of the simplest methods of short-term financing, a corporate credit card can provide several benefits aside from cash management: It simplifies expense tracking, may offer cash back or other rewards, can provide insurance benefits, and allows your employees to make purchases without submitting time-consuming expense reports. Of course, the interest rates on cards can be significant, so be sure to comparison shop and be aware of the terms around low introductory rates.
- Lines of credit: A line of credit is a flexible tool that can provide cash only when you need it rather than requiring you to take out (and pay interest on) a preset amount. It’s commonly used in businesses that have fluctuating cash requirements. For example, a business that has seasonal inventory peaks may use a line of credit to cover that cost until the related product is profitable. There will be a preset limit to how much you can access, but you can take anything up to that amount at any time you choose. Again, because you usually only pay interest on the amount you take out, this type of loan can be very cost effective. However, a line of credit often requires some type of collateral, and some agreements can allow the bank to require immediate repayment on demand, so it’s very important to thoroughly understand the agreement with your bank.
- Equipment leases: Much of what you need to keep your business running -- computers, vehicles, furniture, tools -- can be financed through equipment leases rather than purchased, reducing your out-of-pocket costs and freeing up cash for other uses. You get a fixed interest rate, tax benefits, and protection against being stuck owning outdated equipment. It’s effectively a contract to make payments for the equipment for an agreed time period, however, which means that you’ve still got a commitment to pay even if your business’s needs change.
- Business term loans: A term loan is a longer-term financing option. You’ll borrow a set amount and pay interest on a fixed schedule over the life of the loan, typically over several years. Depending on the agreement, the interest rate might be fixed or floating, and the loan may or may not require collateral. You’ll need to agree to certain covenants (requirements that the bank determines) that can include financial reporting to the bank, meeting financial and operational metrics, and following management restrictions.
- Commercial mortgages: If you’re planning to own your office, warehouse, or retail space, you’ll likely be obtaining a commercial mortgage. Much like a home mortgage, rates can be fixed or variable, and the time scope of the mortgage can vary. And like a residential mortgage, refinancing is available when rates are favorable.
- Small Business Administration loans: Finally, if you’re looking for a loan but have difficulty coming up with collateral to secure it, an SBA loan might be the answer. The SBA partners with lenders to set up guidelines for their loans, which the SBA then guarantees. If your business meets the requirements for an SBA loan, you’ll want to make sure that the lender you choose has excellent customer service and deep experience with this type of loan, because navigating the bureaucratic process can be tricky and the requirements can change frequently.
