What is the Best Type of Loan for Your Business?

Friday, January 15, 2021, 6:00 AM | 1 Comment

The year 2020 has hit many businesses hard. Whether you’re a restaurant struggling to keep going with carryout or a medical device manufacturer drowning in work, extra funding can be a wonderful option to help you hang on or expand.

Your current debt and your assets can help determine the best type of loan to support your business.

What is the Best Type of Loan for Your Business?

  • Long-Term Options: Mortgages

    If you own or run a business, not-for-profit, or religious organization that owns property, then a refinance of your mortgage could be the key to expanding or keeping ahead of debts that may be piling up.

    For a religious organization in particular, carefully review the church loans that could be available for improvements. Could you start a daycare in your facility? Is there space for a senior center? You may need to make some updates to your building. However, you could make improvements that would not only make like easier for your church members and make it possible to generate a business that would support your building maintenance and remove the burden from members or parishioners.

  • Fast Payouts: When You Need Money Now

    Part of staying in business in 2020 is looking for good deals when other businesses close up shop. If you find a great price on material or equipment that would make it possible to expand your business, having access to a fast payout loan could be just the thing you need to expand.

    Of course, this loan will have a high-interest rate, and there may be up-front fees. However, if your investment is likely to pay for itself fairly soon, or if the price is right, you can use it as collateral and wipe out the short term debt with a longer payout loan and keep on expanding.

  • Repair Loans: When Your Credit is in Trouble

    If your choice has been to pay long-term funding or cover necessary materials, your business may have credit trouble. To overcome credit trouble, consider looking for a loan that will cover urgent debts in the short term or a loan to help with unpaid invoices that are limiting your cash flow.

    If you’re part of a partnership or an LLC, talk to your accountant. For business owners who receive flow-through payouts, there may be a sizable income tax payout coming your way. To make the best use of this, now may be the time to file a Form 1045 to maintain positive cash flow until you can get long-term business financing in place. Of course, this can also be helpful if you receive a K1 payout but haven’t taken a paycheck during the crisis.

  • Standard Funding: Loans with Steady Payment Requirements

    This may also be a good time to look for a good consolidation loan to manage small business expenses. If your facilities and your equipment are already leveraged, you may need to pay a bit higher interest rate until you can rebuild your AR system and start getting money in the door.

    You may need to build a bridge of sorts to get your business funding back in order and get a loan that will offer a steady, manageable payout.

    For example, you may need to:

    • borrow on personal credit

    • file a 1045

    • cover bad debts that are harming your business credit

    • consolidate small debts into manageable monthly payouts

    • increase your footprint or your tool stock

    • mortgage these additions

    Sit down and create a long-term plan that includes what bumps you can think of. While the market appears fairly stable and inflation is supposed to stay low, current consumer confidence will make growth a challenge. In addition to running your business, you may need to bump up your marketing budget or add staff.

None of this will be easy, and uncertainty in the current climate will make your future much more uncertain. However, until we as a nation can turn the corner to the path that gets us through the COVID-19 crisis, you will need to carefully assess what you own and the best way to leverage it. What you owe will grow for a time, but once you’re making enough to service the loans, your business can get back into growth mode.

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