Small business financing is any source of money, besides revenue, that covers start-up costs and emergencies. This article discusses financing solutions. Business loans are the traditional form of small business capital, but new options have arisen in recent years that weren’t widely available before. These are consumer financing, lines of credit, and business credit cards.
In my last post I broke down website cost, then briefly mentioned PayPal Credit as a way to pay for it. PayPal Credit deserves more attention, as do other companies that financially support small businesses.
I need to thank my fellow web developer James Welbes, owner of Cedar Rapids Web Design, for the idea of financing web design projects. He partnered with Cedar River Finance, a service local to Cedar Rapids, Iowa, and mentioned it to me months ago. Cedar River Finance deals in “consumer financing,” which enables businesses that sell high-price items to customers. The founders of Cedar River, according to its website, got their start working for the local Smulekoff’s Furniture. If you’re a web designer or agency, or small business in an area other than Cedar Rapids, you should first type “consumer financing” into Google to find a service local to your area.
United Consumer Financial Services defines consumer financing as, “…when a business offers financing to their customers with help from a professional finance company. This allows the consumer to pay for a good or service they couldn’t pay for up front in cash or credit card. Consumer finance is helpful for both businesses and consumers.” https://www.ucfs.net/consumer-finance-benefits/
Next, I should give credit to the web design service WebStix, because it’s through them I discovered PayPal Credit. WebStix comes up in a Google search for website financing, and they list PayPal, OnDeck, and behalf.com as potential sources of funding.
PayPal Credit is a nationwide consumer financing service made possible through a partnership with Synchrony Bank. If you have a PayPal account, you can log into the website and read its FAQ. You can apply for PayPal Credit by simply entering your date of birth and social security number, and accepting the PayPal Credit terms. Eligibility is determined within seconds. Purchases and made through the service can be paid in installments, and there is no interest for the first 6 months. The annual percentage rate (APR) is 26.24% as of 2019, but this can be avoided by making monthly payments by their due dates.
PayPal Credit is very handy if you want to run an e-commerce business. Since it’s an online service, you can enable it through partnered apps including WooCommerce and Shopify. You can make it available in checkout. If you run a service-based business, like auto repair, cleaning, consulting, and so on, you can send digital invoices through PayPal and enable PayPal Credit in them. This is what I have started doing for my web design work, and I encourage my fellow freelancers to check it out. This way they can earn decent fees for their labor.
Business loans are an age-old option for financing made by banks and credit unions. The terms of loans are very strict, especially since the Great Recession, after financial giants were rocked by bad loans in real estate. Mark Cuban has famously said, “Only morons start a business on a loan.” They require detailed business plans, personal guarantees and collateral, and piles of paperwork. They are “equity financing” according to this article by Inc.com, which means your property and livelihood are on the hook. The article makes the case for “debt financing,” which most of the options in this post fall under.
If you choose to pursue a business loan, then your business website should be part of the business plan submitted to the lender. It would work best if you consulted a web developer or agency beforehand, and agree on a project fee. Given the risk of “scope creep,” when changes to a website are requested that aren’t mentioned in the original contract, I prefer you follow one of the more flexible financing options listed in this post.
Business Line Of Credit
A business line of credit allows one to borrow up to a given amount, and pay the money back on your own schedule, similar to paying with a credit card. This method, as well as consumer financing, are more relaxed than business loans. They can be tapped if you have unexpected expenses and need funding within a few days.
This article by Nerdwallet tells us about many popular companies offering lines of credit and how they work. They usually require a decent credit score and for your business to be in operation for a set number of months. They also charge higher interest than business loans. If you’ve been in business for a considerable time already, and need to update your web presence, a business line of credit is a fine way to go.
Nerdwallet starts with three companies that extend credit to up to $100,000. Fundbox is the easiest service to apply for, as your business needs to operate for only 3 months and has no minimum credit score requirement. StreetShares has low interest rates, but you must be in business for a full year. OnDeck offers funding within 24 hours of application, and requires a credit score of 600 or more.
Kabbage requires a credit score of at least 560, at least $50,000 in annual revenue, and a full year in operation. BlueVine has lower interest, but requires a credit score of 600. Kabbage and BlueVine offer funding up to $200,000. Nerdwallet’s article does a great job explaining the subject and I urge you to read it.
Business Credit Cards
The Nerdwallet article then discusses business credit cards. These are another type of line of credit, but have more features. “A business line of credit provides a higher credit limit, may be secured by collateral and provides actual cash to your bank account when you make a draw. You can get cash through a business credit card, but you’ll be charged fees and a higher APR to do so. Other common fees for business credit cards include annual fees and late-payment fees.”
Business credit cards are available through all the major credit card companies, and are simply another line of products they offer. If you have an existing credit card for personal use, you may call your company and ask for one for your business.
This article even tells us of cards you can obtain if your credit score has taken a hit. It goes over “secured” cards, which require a cash deposit as collateral. In effect, you’re borrowing against your own money rather than a bank’s. By paying off your balance every month and avoiding interest, you’ll build your credit score enough so you can obtain a regular “unsecured” card or line of credit.
If your credit score is sufficient, an unsecured business credit card will give you great leverage in funding your costs, including a quality website. If your credit is lacking, careful planning is needed, since you already require money up front to back your credit card. If you want a website to market your business and drive sales, be clear with your web developer about what you need, and take heed of his or her recommendations. You can’t afford scope creep in this situation.
If choosing a financing option seems overwhelming, let me recommend a company called Fundera. I discovered them while researching this post. Fundera is a financial advisor service dedicated to small business financing. When you visit their website, you can shop for business loans, business credit cards, read through their knowledge base, and book personal consultations. It’s gratifying to see a company focused on America’s small businesses and helping them thrive. As a freelancer and former employee of a major yellow pages publisher, I know the importance of small businesses and startups as the driver of job creation, and balance against the power of giant corporations. In the Internet Age, there’s no shortage of resources for the independent entrepreneur.