The opportunities that come with owning a business are enormous but require a lot of discipline, time, effort, and money. As a sole proprietor, capital is vital for your growth and success. Because of this, many business owners look for business loans to get the funding they require. Here, we will be discussing business loan options for sole proprietors.
What Exactly Is a Sole Proprietorship?
Let’s get the basics first: a sole proprietorship is a business owned and operated by just a person, with no legal distinction between the owner and the business entity. It’s perfect for anyone who can succeed by working alone (or perhaps with one additional employee), such as:
- One-person accounting businesses
A sole proprietorship presents a problem when seeking financing because the company’s earnings and financial obligations are virtually identical to yours. Therefore, any effect on the company’s creditworthiness will also impact you. Getting a loan can be time-consuming and challenging if you don’t know all your financing options as a sole proprietorship. Let’s get started.
What Are Your Financing Options?
Spend some time reviewing your business plan and goals, and then carefully consider which financing option is best for you at this time.
Most people think of a term loan as a “traditional loan.” The lender offers a lump sum payment for a fixed or floating interest rate. You, as the borrower, are responsible for repaying the loan by a predetermined repayment schedule. These business loans are typically not tied to any specific purpose, such as purchasing equipment or paying employee salaries. You can use the borrowed funds for short-term and long-term business objectives. Please remember that you may be required to provide collateral to secure the loan.
Business Line Of Credit
It is a flexible business loan that allows you to borrow up to a predetermined amount, or credit limit, to meet short-term needs. When you have a business line of credit, you can access some or all of the funds as needed. After you have fully paid off a portion of your line of credit, the entire amount is available again. Although business lines of credit function similarly to credit cards, they are not the same. Credit cards have higher interest rates, and a line of credit does not always require a monthly payment structure.
Invoice factoring is a type of small business financing in which a company sells invoices to a company for cash upfront. When the customer pays the invoice, they pay the remaining balance to the business owner, less a fee. Invoice factoring enables you to obtain the working capital required to cover business expenses and plan for the future without incurring the fixed monthly payments associated with a term loan. This financing option is essentially an ‘advance’ on pending invoices and is an excellent way to solve short-term cash flow issues.
Merchant Cash Advance
A cash advance is a business financing given to a company in exchange for a certain percentage of revenues or credit card sales. A merchant cash advance is not the same as a loan. With a cash advance, you and the lender agree on an acceptable transfer schedule based on your revenue—also known as the remittance. They transfer remittance to the lender based on a predetermined amount deducted automatically from your credit card or bank account.
The most important consideration when applying for business loans and financing is your liability as a sole proprietor. In contrast to a corporation, there is no distinction between your business and personal finances. You and your company are jointly and severally liable for any debts incurred. In some ways, taking out a sole proprietorship loan is similar to taking out a personal loan.
At Fincrew, we know that a small business entails much more than a balance sheet or credit rating. It doesn’t limit access to small business loans and other forms of financing to those with a solid track record in the industry or a cunning business plan in a leather folio. Discuss your financing options and the best way to obtain funding for your company with one of our experts.