Financing options for each of these two functions are discussed in turn. Once your business is up and running, it may need capital to maintain ongoing operations or to finance expansion. With debt financing, lender and borrower agree in advance to an interest rate or fixed payment and a schedule of repayment. Debt financing comes in many different forms and is offered by many different types of lenders, including commercial banks, leasing companies, credit card issuers, SBA-preferred lenders, and factoring companies. The term can range from 1 to 15 years.
Interest is charged on the outstanding balance of the loan, and interest rates are usually fixed.
Term loans are often appropriate when the money is needed for a specific and limited purpose, such as purchasing equipment or making capital improvements. Lines of Credit give businesses the option of borrowing as much money as they need, whenever they need it, up to a prearranged maximum amount. Interest is charged only on the outstanding balance, not on the unused portion of the line of credit. Interest rates are usually tied to the Prime Rate. A line of credit is generally open for one year, with annual renewals at the lender's discretion.