Regardless if you need money to start, manage, or grow your business there is a wide array of financing options available. Each type of financing has its own set of pros and cons and some consideration should be given to all the main options before deciding what is best for your business and your situation. With that being said, debt financing is one of the most common and most accessible types of funding a small business can pursue.

Debt financing is when you borrow money from a lender and pay it back, plus interest and/or fees, at a later date or over time. Below we explain and compare some of the most prevalent debt financing options.

Most businesses will not be able to cover their entire financing needs with a business credit card but, they still have a valuable place in business financing. Business credit cards are very similar to personal credit cards in that they usually offer different types of rewards as incentives and can be a quick and easy way to cover everyday expenses. When used responsibly, they are an excellent way to establish your business credit.

A business loan is most likely the first type of financing that comes to mind when you think about small business financing. With a loan, you receive a lump sum of cash and make regularly recurring payments – usually monthly but can be daily or weekly – payments to the lender, plus agreed interest, until the loan is paid off in full. The major benefits to loans are that the cash is in your bank ready to be accessed when you need it and that repayment is outlined and routine which, makes it easy to plan your finances around.

Short-term vs. term

There are short-term and term loans. Short-term loans are usually paid back within three to eighteen months. Term loans are paid back over a longer period of time. While short-term loans have less stringent requirements, they tend to carry higher interest rates and be approved and funded faster than term loans. Term loans are more difficult to attain but, may be approved for higher amounts and can carry lower interest rates. The specifics of each loan will depend on the business’s history as well your personal credit information.

SBA Loans

It is also worth looking into Small Business Association (SBA) loans. These are some of the most desirable business loans available. The SBA partners with lenders and guarantees a portion of a loan to encourage lenders to lend to businesses they may not otherwise approve for a loan. Since the SBA guarantees part of these loans, the interest rates and repayment terms tend to be some of the most favorable. However, the process to be approved for an SBA loan is detailed and lengthy, will rely heavily on the business owner’s personal credit history, and often requires a business to be able to demonstrate a stable revenue stream.

Last but, certainly not least is a bank line of credit. A bank line of credit is a hybrid between a credit card and a bank loan. It operates like a credit card in the sense that it is revolving credit. You are approved for a maximum limit and you only use what you need when you need it. As you pay your balance down, your available balance increases and you able to borrow more up to your maximum limit. However, unlike a credit card, you actually take cash from the lender and deposit it into your bank account, which means you cannot instantly access your available funds. This is one of the lesser known business debt financing options but, can be one of the most flexible and useful options depending on your specific circumstances.

This is far from an exhaustive list of all debt financing options. However, it covers the most common and readily available. Before deciding on which option(s) to pursue, make sure to do your research and take into consideration your business and personal circumstances as well as your future business plans.