Borrowing for Small Businesses: Is it Worth the Risk?
Small business owners are inundated with the philosophy that they cannot thrive or grow without borrowing capital from traditional lending channels. Loans, merchant cash advances, and other forms of financing place a strain on cash flow and offer single-use sources of capital. Between debt, impacted credit ratings, and a strain on cash flow is borrowing worth the risk?
The Burdens of Borrowing
Borrowing from traditional lending channels places a number of burdens on small businesses. First, the requirements to access loans are prohibitively high. Small businesses may not have the credit ratings to get the capital they need, so they are stuck borrowing a lower amount complete with debt and high interest rates. Second, even a small loan impacts business credit ratings. If the need arises for loans in the future, the adjusted credit ratings and existing debt may make borrowing an impossibility. Third, loans are one-off financing. Once the capital is used, the debt remains, and the only recourse to get more money is to apply for yet another loan, which brings more debt.
Merchant Cash Advances
Merchant cash advances are offered under the umbrella of “alternative financing.” Merchant cash advances are pushed as zero-debt advances in capital to help businesses with cash flow issues or for growth. What business owners are rarely told upfront is that merchant cash advances are repaid only through sales paid for via credit card. If customers are using cash, checks, or even e-payments, that revenue doesn’t count toward repaying the balance. With cost-ineffective fees and interest rates, along with balloon payments, taking out a merchant cash advance can cause more long-term harm to finances than it claims to help.
Asset Based Credit
Instead of digging a hole with debt-based financing or merchant cash advances, small business owners are opting for asset based lines of credit. Asset based lines of credit provide a renewable source of working capital structured around assets owned by your business. The revolving line of credit can be drawn upon as needed without placing debt on the books. Additionally, the line of credit can be used for anything, from correcting cash flow issues to restocking inventory, marketing campaigns, paying down debt, or anything else. Best of all, as your business grows, the amount of financing available through asset based lines of credit will also increase.
CNH Finance specializes in asset based solutions for small businesses in every industry. Contact our offices today to get the financing you need without impacting credit ratings or taking on unnecessary debt.