Friday, February 15, 2008

Choosing Between Small Business Funding and Small Business Loan

For many, the term ‘small business funding’ and ‘small business loan’ may not make much difference until they are aware of the pains involved in getting a business loan approved, however small it may be, and comparatively the rather painless process of acquiring small business funding.

The common feature in them is that they both are sourced to sustain, expand or remodel your business. But they are widely different when it comes to the process and cost involved in obtaining funds through each one of them and repaying the same.

Let’s compare the process first

Process Initiation:

Small Business Loan: The process starts with contacting a bank or loan agent and filling a loan application form.

Small Business Funding: You already have a merchant account and are accepting payments through credit card. All you have to do is just fill in your details in a form and submit it, even online, to companies that offer cash advance.

Approval Process

Small Business Loan: The bank will pull out your credit rating, look into your credit history and check whether you have the capability to pay back the loan. In case you have bad, poor or even average credit rating, the chance of approval for your loan application is quite low. Even if approved, the rate may be considerably higher.

Small Business Funding: There are no credit checks here. You can get approval even if you have poor credit rating as this type of funding has nothing to do with your credit score.

Approval Time:

Small Business Loan: Along with poor chances of approval (in case of bad credit history) the loan approval time due to involved intricacies and formalities is much longer.

Small Business Funding: The time taken for such funding to be approved and the cash transferred to your bank account varies from 48 hours to one week. That means you don’t have to wait much to be sure that you have enough funds to back your business plans.

Now let’s compare the cost involved in the process

Closing costs and processing fees

Small Business Loan: The closing cost and processing can vary from lender to lender and the amount of loan. But one thing is sure no loan can be free of closing cost and processing fee and you have to bear the burden.

Small Business Funding: There is no closing cost and no processing fee involved. That means you repay only what you get.

Repayment Method and Time

Small Business Loan: Your lender will fix time for you and you have to strictly adhere to repayment schedules or else you will be charged with penalty. Every delay in repayment of your monthly installment can cost you late fine and other charges.

Small Business Funding: You are not tied with any strict repayment schedule. A mutually agreed upon percentage from your credit card sales automatically goes towards repayment of your loan. This makes repayment much easier.

Now let’s see why small business funding is not a loan?

This funding is allotted to you against your future credit card sales. That means the merchant bank anticipates that you will have good sales in future buys your future credit card receipts. Hence the bank buys your future credit card sales and agrees to provide you with the working capital you immediately required.

So what are you waiting for? If you are in business for at least 1 year and have good volume of sales through credit card, you can apply for small business funding immediately and get the much needed working capital within a few hours in your bank account.


John said...

Wow! You guys are making an offer which is difficult to refuse. Though I am skeptical by nature, made so by constant refusal and looooong approval process of banks, you people at least sound good. I own a small but popular bakery in Lindsborg, Kansas.
My store was looted by some goons and long insurance process meant I defaulted on some loan repayments. Now despite constant demands of customers I can’t reopen the store as I don’t have money to get raw materials. Banks are into constant refusal mode. In short, I am close to disaster. Think you can help?

Gene S. said...

Another big difference between a business loan and business funding is that funding is pretty much instnatly approved as long as you accept credit cards. Funding is an especially great option when you're faced with high interest payments from a typical bank loan.