Good financing is the backbone of every successful business. Doesn’t matter if you are an industry leader or just starting out, your business strategy needs a reliable lender.
However, finding the right lender for your business and finance requirements can be a challenge.
If you’re working on your 2023 business strategy, take a moment to better understand the different types of lenders and how they operate.
This can help you determine the right fit for your business as you develop the best financial plan for the new year and beyond.
Who Is A Lender?
A company or financial organization that provides credit to businesses and individuals with the agreement of full reimbursement is referred to as a lender.
Borrowers must pay interest to lenders on the money they borrow, which is often assessed as a certain percentage of the overall loan amount.
Lenders can be particularly helpful in situations where large sums of money or funds are required. This may include loans for buying a house, starting a business, or other forms of mortgage.
Depending on your business requirements, you can avail of services from different types of lenders.
A bank often provides a convenient host of lending options all in one place.
With deposit accounts and investment products, a traditional bank can be an attractive choice for a small business in need.
If you qualify for a bank loan, you may receive a reasonable interest rate and a way to help build your business credit.
Yet a traditional bank may not be the right choice for every small business.
Start-up companies and those without an extended period of business credit may not meet the criteria for a bank loan.
These not-for-profit financial institutions may offer a unique selection of financial services.
But, not every credit union serves everyone. These financial institutions may be limited to a specific state or occupation.
Credit unions vary widely in terms of technology and their number of physical branches, and the loan size could be smaller, but they may offer a more one-on-one approach.
That’s not the only potential perk of applying for a loan with a credit union. You may be able to snag a better rate, get more affordable transaction fees, and receive a response on the status of your loan a bit faster.
These financial options don’t have the usual deposit account or credit cards of the typical bank, but they can help minority borrowers meet their financial needs.
For example, the Small Business Administration (SBA) Microloan Program granted 5,890 microloans in 2020.
One major advantage of microlending is the diversity of options you have.
These loans also carry low-interest rates, but there are caps on how much you can borrow and restrictions on how to use the money.
Before you apply for a microloan, read the fine print to know if you can use the money on the items in your business strategy.
A merchant service provider can help a qualified business receive the financial support it needs by offering merchant cash advances (MCAs) in exchange for a cut of future credit card sales.
This financial option is best for those with established relationships and a history of electronic payments.
Depending on the volume of your credit card transactions, receiving this type of financing can be fast, sometimes netting approval even with bad credit.
There are potential downsides. The interest rates may be higher, and you’ll have to budget the amount that the merchant services company is taking according to the terms of the agreement.
What Is Embedded Lending?
Embedded lending occurs when lending is offered through non-financial services or products.
This type of lending skips the use of a third party and makes it where a business can offer a loan directly to its customers.
Customers can obtain financing from any trusted non-financial brand at the time of need by embedding or inserting lending within the non-financial brand or customer purchase cycle.
By digitizing the credit-disbursement process, Embedded Lending has given small firms access to a new world of opportunities.
Update Financial Options
There were 32.5 million small businesses in 2022, according to the Chamber of Commerce.
How will you help your business succeed? Whether you opt for a traditional bank loan, a credit union, a microlender, or a merchant lender, you have plenty of options.
Small businesses that turn to the right loan option to fit their needs can better stay a step ahead in 2023.