Types of bank financing

Exploring all the possibilities will help you to find the best choice for your new business.

Your bank will offer a range of solutions to address a range of financing needs. Exploring all the possibilities will help you to find the best choice for your new business.

Use this brief description of the more popular types of financing to better understand each option.

Types of bank financing

Your plan for your new business probably includes raising some money to finance start-up.

A new business typically requires capital for one-time, larger purchases like equipment or a building, and working capital for day-to-day operating costs, such as rent, wages and supplies.

Below you’ll find a helpful summary of the types of financing products offered by major financial institutions.

Term loans

Large amounts of well-placed capital can make a big difference to your ability to stay competitive. If you’re planning to purchase fixed assets (like a new kitchen for your restaurant, or new computers for your design firm) then consider a term loan.

Bridging loans

This type of financing provides your business with a ‘bridge’ to get over short-term financing gaps while you arrange a more permanent solution.

Operating line of credit

This is a good, flexible option if your business is seeking short-term funding while it collect accounts receivable or wants to purchase inventory. A line of credit acts as a cushion to help you manage shortfalls or seize opportunities.

Business credit card

A credit card provides a form of short-term financing because you can charge business expenses to the card and pay later.

Many cards can be used without incurring interest charges as long as you pay your balance in full within a stated period of time (the grace period). Business credit cards also help you to separate your work and personal expenses to make year-end accounting easier. Many cards give you the ability to earn points or offer cash back with every purchase you make.

Lease financing

Instead of buying office equipment, technology or manufacturing equipment, leasing is often preferable. Similar to a car lease, your business agrees to pay a specific monthly amount for the use of an asset.

Factoring

Large customer orders can squeeze cash flow as the owner tries to juggle the cost of fulfilling the order with collecting payment. To turn those accounts receivable into cash, you can sell them at a discount to lenders.

Your business will likely need to borrow money at some stage of its development. The more advance planning you do, the better your chances of getting the financing you need at the best rate possible.

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