Small businesses are considered to be a highly crucial component to the economy. Additionally, they are exceptionally important to the entrepreneurs that invest their time and money into starting, operating, and growing them.
If you own a business, it is imperative to understand how to handle the monetary aspects of your business. You will typically require funds to start your business, purchase necessary equipment, compensate your suppliers and those that you hire, and for various other operations. You will also need to know how to handle your daily expenses.
In this brief guide, you will be presented with banking tips that will allow you to achieve the highest level of success in all of your financial endeavors.
Financing Options
Excluding loans from individuals and various types of investments, there are three main strategies for financing a small business. These methods include personal lines of credit, business lines of credit, and business-related term loans. You should become familiar with each of these types of loans in order to determine the best option for your needs. By knowing what financing options exist and the risks associated with each, you will initiate the banking process with confidence, which will help you on a long-term basis. Below, you will find a brief explanation of each:
- Personal Lines of Credit – This type of financing involves the acquisition of a personal credit card, a business credit card, or lines of credit involving home equity. While it is common to utilize personal lines of credit, it is crucial to understand that many risks abound. First, the interest rates and fees are typically quite high. Secondly, the amount of debt accumulated may not be directly supported by the revenue that exists from the business, and if you place your home up for collateral, you stand the chance of losing it.
- Business Lines of Credit – Essentially, this is a loan that allows businesses to borrow a certain amount of money and then repay in installments. Often, entrepreneurs will use this financing option to finance very expensive and long-term investments, but, these types of loans are only intended to be a short-term option.
- Business Term Loans – This type of loan is for a set period of time. Often, these loans are used for larger purchases as the term of the loan is often spread out over a course of several years, instead of months.
Covering Expenses
The next step to ensuring an optimal banking experience is to know and understand the methods that may be used to cover the operational expenses of your business. If your revenue is high enough, you may utilize cash for your expenses. However, if it is not, your options will be credit cards, debit cards, checks, and mobile banking. In order to make the best use of your payment strategy, you must learn the rules that govern each of the payment methods at your disposal. This is critical because those rules could have a positive or negative impact on the liability your business may incur for unauthorized use.
Resources:
https://www.sba.gov/loans-grants/see-what-sba-offers/sba-loan-programs
https://www.origin.bank/blog/9-financial-tips-for-entrepreneurs/
Somerville Bank has 8 Locations