The United States is home to over 30 million different companies, and 99% of them are small, meaning they have under 500 employees and typically have limited cash flow and savings as well. The good news is that smart loans such as inventory financing, contractor funding, payroll funding, and other small loans for companies can help any business finance its current projects and get ahead. Still, such loans should be made carefully, and the business owner should have good credit and not rely too heavily on these loans. A payroll funding company or a restaurant funding company will have more lenient standards than a big bank, for example, but still have some standards. This applies to contractor funding, too.
Getting Loans
It is believed that 45% of all small business owners are not even familiar with the concept of business credit scores, and many admit that they aren’t as financially literate as they should be. Take note that a business owner should have both a good business and credit score when applying for loans, including business credit cards. Big banks are reluctant to approve loans to small and risky borrowers like these, so small business owners often turn to specialized lending companies that deal with their industry. It will help if the borrower has no red flags in their financial history, such as defaulting on previous loans or being delinquent about loan repayments. If a small business owner has good credit, they can get generous loans with low interest rates, such as financing a truck trailer, and borrowers with mediocre to poor credit can still get loans, though with less favorable terms.
Inventory Financing
A company that sells merchandise will need inventory to sell, and this can be financed through loans if need be. An inventory financing firm will help, and the borrower company can repay that loan as stock is sold in sufficient amounts. This allows the borrower to have a lot of items on hand to sell right away to customers, and that’s a big deal if the company gets a lot of customers. This is a secured sort of loan; that is, the inventory itself will act as collateral. This makes the loan more attractive to the lender, since if the borrower can’t repay the loan, the lender can reclaim the inventory itself. This sort of loan might be especially prudent during the holiday shopping season where the company stands to sell a lot of goods, or any other time of year when their stock is highly desirable by consumers. Timing this sort of loan is helpful, since the loan may turn sour if sales are too low during a slow time of the year.
Construction Contractor Funding
The world of business loans most certainly extends to construction, and contractor funding tends to deal with huge numbers. Even a modest construction project may cost hundreds of thousands of dollars, or even a few million, and small construction firms typically don’t have that kind of money on hand. So, these construction firms can apply for and get contractor funding, but such loans function in a particular way.
Contractor funding is not given as a lump sum, but rather, broken up into pieces. The borrowing construction firm will get enough money to star the project and complete its early phases, and once that’s done, inspectors from the lending company will visit the site and approve it if they like what they see. Now, another piece of the loan is given, and the same process happens again. This will repeat itself until the project is finished. Once that happens, the construction firm owes a big debt, and they can repay it by getting a mortgage on the property that they just finished, and pay off that mortgage in installments. It would be a real headache to try and pay off that construction loan up front, after all.
What if the project is terminated? If the project is canceled halfway, then the construction company only has to pay interest for the amount of money borrowed thus far, not on the grand total. After all, it would make no sense to pay interest on money that was never borrowed in the first place.
