As a small business owner, what're the goals for 2019? Maybe you want to buy new equipment that can change your business industry? Or you probably need new faces in the company, so that you could increase the efficiency of small business? Well, there could be tons of reasons, why small business owners want to get additional money for 2019.
It's not easy to access extra funds. There are indeed tons of financial tools that can help small business owners in that, but some of them they require additional info that may not be affordable for small businesses.
Today we would love to compare the two most significant financial tools that can help you in business development. Both, a business line of credit and traditional banking loans, are very interesting for small business owners. Today you'll explore how two different types of credit work and find out how to choose one of them.
Traditional Bank Loans
Before 2008, small business owners always used traditional banking loans. It was easy finding a local bank near the office and getting approval from it. That was a regular route for small business owners. Then the financial crisis happened in 2008, and the bank started overlooking every offer. As for today, the banking system approves averagely up to 30% of traditional loan requests.
Financial stability and strong credit history
Currently, small business owners go for alternative options. Despite that fact, we still should not neglect traditional loan option. Generally speaking, if you want to have approved application in the banking system, your small business must be financially stable and have a substantial loan history.
Before you attempt for a traditional bank loan, you should make sure that business has a good credit score. As you know, the business credit score is between 1 & 100. If a small business credit score stands above 75, then it has a future. Small businesses that have a strong credit score get access to extra funds easily.
Banks want to cooperate only with established businesses
Now let's outline the pros and cons of traditional bank loans. What could be a positive note? Well, if banks approve your loan request, then they give you access to a vast amount of money. It's not profitable for banks to provide small loans so that it would be better for your small business also. As for the cons, there are tons of them. First of all, traditional bank loans have strict requirements. Without a positive business credit score, it's almost impossible to get approved. Banking systems asks for all the information, and they may request access to personal info of customers, and that's not great for small businesses.
Line of Credit
It's an alternate option for small business owners. If you want to have access to a certain amount of money, then Line of credit is created for you. Unlike traditional bank loans, you don't have a schedule of the monthly payment. With the business line of credit, you can use a certain amount of money anytime your company needs. You can replenish credit and start the small cycle again. It depends on your desire and level of business success.