Each business is different. Even businesses running in the same industries can have diverse needs and requirements that specifically fit them.
This is also true when it comes to money. When a business reaches a point where it needs to start looking for financing options, it must go through an initial phase of analyzing the specific requirements.
After this first phase of analysis, the business then may choose one of several financing options, the main ones being.
- Short-term business loans.
- Business credit cards.
These two business-financing options are your best bet when you need to have immediate access to funds and cannot afford to go through a complicated hassle or long waiting time.
But, which of those two options is best for your business?
To answer that question, you need to know a little bit more about what each option offers.
Short-Term Business Loans: Quick Access to Credit
Short-term loans are business capital loans that provide you with the advantage of quick access to working capital for your business. They are basically the same as long-term loans except they are repaid within a short period, usually within 1 to 2 years.
This type of loan is best for overcoming financial obstacles, quick opportunity taking or paying off debts with higher interest rates.
Business Credit Cards: Access to Credit Anytime
Business credit cards provide businesses with immediate access to a revolving line of credit for cash withdrawals or direct purchases. You then pay interests only for the borrowed amount.
These credit cards come in handy especially for situations where you have a constant need for instant funds and covering gaps in your cash flow.
Choosing between short-term loans and business credit cards
To better convey how short-term loans and business credit cards can affect your business, we provide you with two real-life scenarios of business owners, and how they used these different options to overcome financial obstacles for their business.
Taking advantage of every opportunity that arises
“I chose a small business credit card over a loan because I already had the cash I needed to launch the business, but I wanted to take advantage of the perks a reward card offers,” says Dan Kellermeyer.
Kellermeyer launched his firm, New Heights Financial Planning, using a business credit card. He pays off the card in full each month to avoid interest, and he racks up reward points for each purchase he makes. He also receives certain protections against fraudulent charges, which he wouldn’t get if he paid in cash.
Kellermeyer says that relying on a credit card, instead of another financing method, increased the efficiency of his accounting workflows, which is significant when you operate as a solo business owner in the early stages. “Everything is online, and my card account even links up to Quickbooks, which is a big time-saver,” he says.
From Delivery Boy to Manager
Juan Manuel Perez is the owner of two Pita Grill locations in Manhattan. Originally from Mexico City, Juan spent fifteen years moving up the franchise-restaurant-ladder. Starting as a delivery boy, and then a cashier, he eventually found himself managing the business.
With all the experience he earned at the Pita Grill franchise, Juan eventually acquired one of the locations as his own in 2008. After successfully running his original location, Juan opened his second establishment just a year later in Manhattan’s Murray Hill neighborhood.
In June 2012, one of the location’s ventilation system needed to be repaired. The issue was not only expensive but mandatory to repair immediately. Juan decided that the best way to go was for him to get a short-term loan for his business needs. The loan completely covered the price of the repair, which helped Juan evade any possible issues the problem could have caused.
Before taking the leap and applying for either one of those two options, we encourage you to do as much research as you can on the subject in order to ensure the correct decision for your business in answering the most important question:
What type of funding is best for my business requirements and type?