Finding business financing is a challenge for every business owner, whether they’re a startup trying to get off the ground or an established business needing a boost of cash flow. However, there is one group that experiences more obstacles than most: female entrepreneurs. Women often face even greater adversity than other entrepreneurs.
Thankfully, there are more options available today for women than ever before. Understanding the different types and knowing exactly what is on the table is key to securing funds. The following are some of the best types of small business loans for women, along with tips on how best to use them.
A merchant cash advance is a type of financing that allows business owners to exchange a portion of their future credit and debit card sales for a lump sum of cash. The biggest reason this option has grown in popularity in recent years is because of how fast those funds are received: in as little as 24 hours. The flexibility of repayment is also attractive. Rather than making fixed monthly payments, cash advances allow businesses to pay back more when business is good, and pay back less during the slow season.
Another option you hear of often is the SBA’s microloan program. This program is designed to help new businesses get the ball rolling. Typically, the amount available is up to just $50,000, but this also makes them a little easier to qualify for than a traditional, large loan. Terms will vary, but they usually extend up to six years with interest rates between 8% and 13%.
Lines of Credit
As it sounds, a line of credit is a specified amount of money business owners can draw on an as-needed basis. Having funds on standby can be a big relief when the unexpected occurs. In addition, if a portion of the line of credit is paid down early, the borrower can reuse those funds. Borrowing limits typically fall between $2,000 and $250,000. While an APR of 10% to 99% is involved, the interest is only charged on the portion of funds the borrower actually used.
Invoice factoring is another option certain industries and small businesses are turning to more and more. Many business types invoice their customers and have to wait 30, 60 or even 90 days for payment. This can quickly tie up cash and make it difficult to operate smoothly. Factoring allows you to sell your business’ unpaid invoices in exchange for a lump sum, usually between 80% and 90% of the invoice’s value. It is also known for putting funds in your business account quickly, in as little as 24 hours.
Essentially, asset-based financing provides an alternative to unsecured loans. Valuable collateral like machinery and equipment or inventory and real estate help secure the funds you need. (Invoice factoring is actually another form of asset-based financing, the asset being accounts receivable.) It poses less risk to the lender, so lending requirements may be less stringent and rates more competitive.
The bottom line: no funding option is created equal – and neither are businesses. Especially as a female entrepreneur, it is important to diligently research and compare your options. Make sure you find a lender that understands the challenges you face, has experience helping businesses like yours and has the support team you need to grow.
Michael Hollis is a Detroit native who has helped hundreds of business owners with their cash advance solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.