Whether you’re an established business or just starting out, chances are the time will eventually come when you’ll require some sort of loan. It can be an overwhelming prospect to sift through the different types of loans and settle on the perfect product for your business’s unique needs. If you’re confused about what type of loan is right for your company, check out this list of financing options.
AR Financing vs. AR Factoring
If you’re a business owner in the service industry, you know that sometimes your customers don’t pay their invoices in a timely fashion. If you’re waiting on that money to pay your employees, purchase new supplies, or maintain your premises, waiting on your customers can put your business needs on the back burner. Fortunately, there is a way to collect your customer payments in one go, allowing you to maintain the flow of your business.
Enter accounts receivable financing. In a nutshell, AR financing gives you a lump sum of what every customer owes on their invoices minus the agreed-upon lending and processing fee. Then, once the customer pays, the lender collects those amounts to recoup the money they lent your business.
Another version of this process is accounts receivable factoring. AR factoring gives you a similar loan for all outstanding invoices, but instead of leaving the final collection to you as the business owner, the lender is the one that manages outstanding payments from your customers. The lender also keeps a certain percentage of the payments in order to cover their service fee.
A term loan is a traditional and straightforward way to get a loan for your business. You get a lump sum upfront, then repay the amount over a period of time, including fees and interest. If you’re a well-established company with plenty of assets and good credit, you could greatly benefit from this type of loan.
Business Line of Credit
Think of this like a giant credit card for your business. You can draw on anything up to the predetermined amount and then pay it back as you go, including fees and interest. If you’re a seasonal business looking for an extra boost or facing an unexpected business expense, a line of credit could give you the flexibility you need.
There are many different business loans out there because even the most successful businesses sometimes need a little extra help. A business line of credit, term loan, and accounts receivable financing are a few solid choices that’ll give you the capital you need to take your business to the next level.