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BFS Capital Blog

Which Financing Solution is Best for Your Business?

August 18, 2016

There are many ways to finance a small business, but how do you know which solution is best for you? That largely depends on varying factors such as which industry you’re in and how you’d like to pay back borrowed capital—amongst other things.

Answer the questions below to find the best financing solution for your business.

Are you in one for the following industries?

If you’re in one of the industries listed above, it has become increasingly difficult to obtain traditional financing from your local bank or credit union. Look to non-depository sources such as alternative lenders. Peer-to-peer financing might also be a good option for you.

How much revenue do you make each year?

If you make less than $100K in annual revenue, traditional banks and most alternative lenders will not be an option for you. A better bet would be to look at peer-to-peer lending or look into taking out a business credit card. For those over this threshold, you’ll have a host of different options including alternative lenders, community banks and credit unions. You may need to make more than $500K in annual revenue to secure a loan with a large financial institution.

How long have you been in business?

For start-ups who have been in business for less than a year, your options are typically limited to venture capitalists or an angel investor, credit cards or crowdfunding. Most alternative lenders require a minimum of one year in business, while banks will want you to have been in business for much longer.

How much are you looking to borrow?

Many large financial institutions will finance up to $5 million, some select alternative funding companies, like BFS Capital will fund up to $2 million. For amounts under $500K, you will have a wide selection of community banks and alternative lenders to choose from. For a microloan, those ranging from $500 – $100K, you’ll want to look to a smaller regional bank or an alternative financing solution provider, as large financial institutions typically do not lend in this amount.

How quickly do you need the capital?

Financial institutions typically have a lengthy paperwork process and funding can sometimes take months. For faster access to capital, you’ll want to look at alternative funding providers, who can give you access to capital in as few as 48 hours in some cases. Capital raised through crowdfunding will be immediate, however it could take you awhile to raise the amount you are looking for.

How’s your credit rating?

For less than stellar credit scores, your options will not include traditional financial institutions, or a Small Business Administration loan, which requires a personal credit score of at least 680. Most alternative lenders require a minimum score of 500. If your credit is below 500, you can find some alternative lenders who do not require a minimum credit score, but the terms are typically short and the cost can be high due to the risk of the loan. A quick Google search will yield results there.

How long would you like to pay back borrowed capital?

Financial institutions typically have longer terms, up to 20 years in some cases. The rates are low and payments are made monthly but the stringent and lengthy underwriting process are sometimes not worth it for small business owners who need capital rather quickly to take advantage of growth opportunities. Typically, alternative lenders have terms from 3 to 24 months. These short-term loans are great for small business owners who need funds in a pinch and who have the ability to pay back on an automated, daily basis as a percentage of their card sales, or, a fixed amount drawn from their business bank account. This is why your monthly, and sometimes annual revenues, are important.

What’s best for your business?

Regardless of your situation, there’s a financing solution out there for your business needs. Often it takes tenacity to wade through the options, but if you’re willing to put in the work to start your own business, this shouldn’t be a deterrent for you.

Hopefully the questions above have helped guide your decision making process, but if you still have questions, we’d be happy to help. To contact a BFS Capital representative today, simply fill out our form and we’ll be in touch.