For customers, the holiday season is defined by the spirit of gift-giving, family, and overall joy. Small business owners are partially responsible for contributing to the holiday spirit by providing great products to meet the increasing consumer demand that spawns around this time of year. No matter how amazing their goods and services are, however, many businesses struggle with access to funding as they try to keep up with holiday demand. That’s when traditional lenders like banks and alternative lenders like Backd come in to help. There are several funding considerations that are offered to help grow your small business during this stressful (but opportunity-rich) time of year.
The Small Business Administration is a government agency that helps small businesses start out and scale up. Notably, they offer several types of loans (often called SBA loans) that can be sought after if your business is strapped for cash. If this option sounds appealing, you should take action now because approval often takes weeks to months. Some of the most popular small business loans include standard 7(a) loans (up to $5 million in funding), small loans (up to $350K), and express loans (up to $500K with quicker turnaround).
Although the SBA doesn’t require a minimum credit score, you’re at better odds for loan approval with a credit score approaching 700 or higher. Local lenders will provide a comprehensive list of requirements after you get matched to one. However, it is important to know that your business is not allowed to get funding from other lenders should you want an SBA loan.
Working capital is a short-term funding solution that allows businesses to receive funding and bridge cash flow gaps much more quickly than what banks could provide. This is a viable option for those businesses with fluctuating quarterly performances, which most small businesses experience in Q4. As the holiday season comes around, this is one of the best options for cash flow when your business is in a financial pinch.
Most lenders offering working capital can provide funding anywhere from a few thousand to a few million dollars. They often require a minimum credit score, which hovers around the 600-700 range. They also require your business to be in service for a certain amount of time, where some only need to see 6 months of operation while others require 2 years to approve you for funding. Should you default on your loan, many lenders require collateral as a security measure, which is when you pledge assets like property to them. At Backd, we don’t require you to put up collateral, and we can offer up to $2 million in working capital while only requiring a minimum credit score of 600 and one year in business.
Another solution that offers much-needed flexibility during this time of year is a business line of credit, which gives you funding as you need it. Much like a credit card, you can draw funds at your convenience. This may be preferable since you only collect interest on what you pull, as opposed to paying interest on the entire lump sum of a loan. We all do our best to prepare for the holiday rush, but it seems like there are always a few additional expenses that add up. Getting just enough funding to cover these unexpected costs is when the power of a business line of credit shines through. You can even opt for a revolving line of credit, which replenishes your credit as you incrementally pay off your outstanding balance.
Again, lines of credit can offer businesses different credit limits, ranging from $1000 to millions of dollars. Credit score requirements could be as low as 550 and reach as high as 700, and most lenders will require a year in business for this product. Additionally, lenders also want to see monthly revenue numbers to ensure proper cash flow. At Backd, those eligible for line of credit only need a credit score 600. They also need to have been in business for at least a year while netting $300k in annual revenue.
Perhaps the most convenient option is getting cash from your family and friends. They’re more likely to be sympathetic to your situation and will be far more flexible than any lender could be. You can also get the money much more quickly, which may be important when considering how your business is performing. It is also a more feasible option if you have poor credit ratings and nobody else is willing to lend you money. However, when requesting capital from your own personal network, it is essential that you have a plan on what you’ll do with their funds and how you intend on paying them back. A very real potential consequence of this source of funding could be damaged relationships if your business goes south. When money becomes a factor with family and friends, these bonds can sometimes be permanently destroyed.
Crowdfunding is pretty much the opposite of family funding. Instead of receiving money from the people closest to you, you’re setting yourself up to receive cash from anyone on the Internet. Each person usually donates smaller amounts, but it adds up quickly as you reach more people with your cause. With websites like GoFundMe and Kickstarter, you can set up a campaign relatively easily and begin the fundraising process. This influx of cash can be thought of as a donation and doesn’t necessarily have to be paid back. Typically, with crowdfunding campaigns, you want to create a movement and foster buzz instead of having a drawn-out process. That’s why crowdfunding campaigns only last a few short weeks to get you where you need to be.
If working capital or a line of credit is what you need, apply now in 3 minutes without any impact on your credit score, and you can see funding in your bank account within 24 hours.