Author: Andres Fernandez – March 18, 2021 – 11:17am – 5 min read
As a business owner getting ready to newly launch your business, there are challenges along the way to maintain a balance between your assets and liabilities. If the balance is disconnected, your business can find itself in a working capital deficit or in debt, and you’ll face a difficult time meeting day-to-day expenses. That is why it is crucial to choose the right lending option, because the balance can be restored.
One of the most common, yet effective ways to receive working capital for a new business is applying through a bank or online lender. Don’t worry, we’ll go over the differences now.
A business loan is a form of an agreement between the lender and you, the business owner. As per the agreement, the lender agrees to give out a specific amount of money to the business owner as long as the business owner repays it, with interest on a predetermined schedule.
Business line of credit, a hybrid of regular loans and business credit cards. It is a revolving loan offered by financial institutions that allows access to a specific amount of working capital for the business owner.
You can utilize the working capital whenever your business needs it and repay back either immediately or over a period of time. Also, the interest rate is applied to the amount of the working capital that is borrowed. A business line of credit works comparably to a business loan in terms of requirements for credit score, score history and collateral.
A credit card is a secure and suitable way to pay for business-related expenses. Also known as a corporate credit card, these forms of credit cards are specifically assigned to a business, not an individual.
They offer opportunities for business owners to easily get access to working capital. Companies use special rewards to lure in both personal and business credit card customers. They offer statement credits, bonus reward points, and cash bonuses, and that’s just to name a few.
There are three categories of credit cards:
Each credit card will have your name on the front, but the main difference is who is ultimately liable if the bill is not paid. Therefore, if you’re a new business owner trying to get working capital, having a well-maintained business credit card can also help your company build credit over time and improve your loan approval chances in the future.
Angel investors are high-net worth individuals who are seeking to provide financial assistance to new ventures and businesses. They offer their financial assistance in exchanged for a share of ownership in the business, typically in a form of equity. This is also called, equity financing which is a great way to capitalize your business.
Depending on the type of investment, angel investors can either provide a one-time financing backing or continue to invest and support the business through various of processes. Approaching an angel investor may seem scary, but it is best to have a clear, detailed pitch that illustrates why your business is essential for financial backing. Be confident in your business!
You could consider the option of partnering up with a company that specializes in exactly that aspect you wish to seek working capital for. Fintech companies are financial institutions using technologies to provide financial services to the customers. They can be of any size from a startup to a big organization. Financial institutions have specialized expertise, programs and high-end platforms that are designed to pump cash into the supply chain finance ecosystem and help raise working capital for new businesses.
Different to traditional bank lending, fintech institutions are often technologically more efficient. Applying for a loan with a fintech partner is generally fully digital. One can apply directly on their websites or their apps and expect a response within 48-72 hours.