Long Term Options

Long Term Funding Options

Longer term funding resembles the typical type of funding options you are more accustomed to, these types of loans usually take much longer to process and require a great deal of paperwork, however the interest owned for each type of long-term funding mechanism will be lower than the short-term funding. Additionally, these type of funding options tend to require some form of collateral or personal guarantee.

Term Loans is a type of funding product which are repaid in regular payments over a period of time, typically between 1 and 10 years (which is why it can be either a short-term financing solution or a long-term solution), however some term loans may be as long 30 years. These loans tend to have floating interest rates, meaning, as interest rates go down, so do your interest payments, however when interest rates rise your rates will go up as well, this may add to your balance. The ability to spread your repayments out over a period of time is an attractive option for some business owners, especially if the business is expanding, with the assumption that revenue will also increase overtime, making repayment easier.

A Working Capital Loan is a type of loan used to fund everyday business operations, they tend to be a more flexible loan option for businesses which need cash quickly in order to cover immediate business expenses, although they tend to be long term in nature, they should not be treated as a long-term funding option for a business expansion. These loans typically have lower interest rates.

An SBA Loan is also a form of a term loan, except these originate at certain banks which participate in a larger program backed by the Small Business Administration. Because banks are not responsible for the entire loss of the loan if the borrower defaults these loans offer a much lower interest rate than the typical term loans detailed above. In order to qualify for an SBA loan, you will need to demonstrate a need of funding as well as a planned use for funding and a detailed description of your business. There are certain funding standards for specific industry types and finally as the owner of the business you will need to prove you have enough equity to invest in the business, aka, you must have some skin in the game. With a SBA loan you typically have a lower down payment, have better terms than a typical bank loan, have extended terms and much more flexibility in paying the loan back.

Small Business Lending Fund is a US Department of Treasury program dedicated to providing capital to qualified community banks and community development loan funds to encourage small business lending. You can inquiry with your local community bank to determine if they are participating in this program and if you are you can work with the bank to see if you qualify.

Equity Financing is the process of selling equity (stock) to investors. In exchange for investing in your small business, the investor receives an ownership stake in the business.

Crowdfunding is a similar take on Equity Financing in which you go to a crowd funding web site and sells equity to a larger audience in smaller stakes.

Peer-to-peer funding is another option in which similar businesses or owners in your industry will loan money out to each other.