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Debt financing is one of the most straight-forward and common financing options for businesses today. In this guide, we’ll cover everything you need to know so you can proceed with confidence and find a financing arrangement perfect for your needs.What is Debt Financing? Debt financing is when a business raises money through a bank or private lender with a promise to repay the principal and interest. At its most basic level, debt financing is a loan. Terms vary based on your needs. In most cases, interest accrues regularly and you must make payments at regular intervals agreed upon at the time you take out the loan. This makes payments and schedules easy to estimate. Whether you’re looking to cover operating expenses over the next few months or a 5-year option for long-term goals, you’ll find options from both banks and lending groups ready to help. Examples of Debt Financing As one of the most popular forms of financing available, debt financing is available through a range of groups, banks and private lenders. In most cases, groups and private lenders specialize in certain types of loans. These loans might also carry specific requirements you won’t find going through a bank or other senior lending source. A few of the most popular options include: Small Business Administration (SBA) Loans While the Small Business Administration is not a lender, they offer a few programs that can improve the chances of approval through other lenders. With the proper qualifications, they’ll even guarantee all or part of the loan on your behalf. They offer three major programs: 7(a) loans: These loans feature open-ended terms and easier qualifications than their other programs. These loans offer access to up to $5-million in funding. Uses include establishing working capital, covering startup costs, refinancing debt and purchasing real estate and equipment. Microloans: Many lenders set lower limits that won’t work with the needs of solopreneurs or basic small business needs. The microloan program helps to cover these smaller debt financing needs with loans ranging between $500 and $50,000. CDC/504 loans: While these loans are the most regulated and feature some of the strictest requirements among SBA loan programs, they offer access to up to $5-million in funding based on current treasury rates and terms up to 20 years. Common uses for CDC/504 loans include large equipment purchases, real estate purchases, land improvements and renovation of existing structures. Merchant Cash Advances (MCAs) Instead of making a fixed monthly or quarterly payment toward the balance of your financing agreement, MCAs are paid back through automatic deductions from your daily credit or debit card sales. This makes them a flexible solution for businesses with seasonal fluctuations in sales that might struggle with regular fixed payments. Invoice Financing As a niche solution for businesses looking to recover cash flows due to delayed invoice payments, invoice financing (also known as accounts receivables financing) is like a cash advance for unpaid invoices. Most lenders offer around 80% of the value of your pending invoices. Once invoices are repaid, you’ll receive an additional portion of the remaining amount. Term Loans These are probably the first type of loan you think about when you consider debt financing. They work as any traditional loan would. You borrow a fixed amount with a set interest rate. You then pay the balance back through regular payments. If you’re looking for a predictable payment model and easy to understand terms, term loans are a top pick. Business Lines of Credit Offering the flexibility of a personal credit card, a business line of credit provides a pool of capital from which you can draw to cover business needs. Common uses include handling seasonal cash flows, obtaining working capital and paying off other debts. Equipment Financing Secured by the item you’re planning to purchase, equipment loans are an excellent way to buy computers, vehicles, machinery and other business-related equipment. Since you’ll use the item you plan to purchase as collateral, most equipment financing offers require little to no added collateral for approval. As you can see, the range of debt financing solutions available to businesses can cover virtually any need. But how do you know what you’ll qualify for and what type of financing to use? Contact us at www.utfinancialservicesllc.com