Now that we’ve reviewed all the different debt financing options available to your business, how do you decide which one is right for you? Ultimately, this decision depends on a number of factors which will vary from business to business. Here are the five main factors you’ll want to consider:
1. AMOUNT OF FINANCING YOU NEED
The size of your loan may need to be guided by the size of loan you can afford—but if you don’t have the capital you need to achieve your goals, there’s no point in obtaining financing at all! Create a realistic budget for your business for the length of your desired loan, and then come up with a number that meets your needs.
2. USE OF FUNDS
As you may have noticed above, the different types of loans suit different spending purposes. If you’re purchasing equipment, for example, you might consider an equipment loan.
3. NATURE OF YOUR BUSINESS
If you have a seasonal business, that may change the type of financing that works best for your needs. Seasonal businesses can sometimes have trouble making consistent daily, weekly, or monthly payments, since their sales volumes aren’t consistent from month to month. That’s why seasonal business owners might consider an alternative form of financing without a set payment schedule, such as a business line of credit or a merchant cash advance.
4. AFFORDABILITY OF FINANCING
Which loan option can you afford? Depending on your business circumstances, it may be that your ideal loan amount doesn’t match with your ability to qualify or with the loan amount you can afford. Use our debt service ratio calculator to determine the size of loan your business can reasonably take on, and see if you can align your business goals into steps that are possible with that amount of funding.
5. ABILITY TO QUALIFY
Of course, as much as you’d like to shop around and choose the perfect debt financing option with the perfect interest rate, the reality is that your options may be limited by your ability to qualify. Later on, we’ll discuss qualification standards like your time in business, annual revenue, average bank balance, and personal credit score, all of which will determine exactly which lenders and loan products you’ll be eligible for.