Choosing the right loan for your business can be a daunting process. Knowing when to take out a loan, what kind, who to take a loan with, what your credit score needs to be...it can get overwhelming. However, event businesses tend to have particular needs when it comes to loans, and this helps to narrow things down.
First, you’ll need to decide if you need a short or long-term loan. Short-term loans (such as capital loans) may be the right choice if you need wiggle room during slow seasons, funding inventory expansions, special projects, etc. Long-term loans (such as SBA loans) are more appropriate for purchasing buildings, vehicles, covering start-up costs, and other types of purchases where you need a few years to pay back the loan amount. Both loan types are available through private banks or through the SBA (Small Business Association).
Standard working capital loans are short-term loans that are designed to cover operating costs, inventory additions, small projects, and other situations where you need a relatively small influx of cash (typically under $50,000, which is also the typical size of a micro SBA loan, although it can be higher), quickly— and have the capacity to repay the loan within a short amount of time (usually about 1-2 years). Capital loans can be provided by any lending institution, including the SBA and Goodshuffle Pro’s Stripe Capital loan program. Our Stripe Capital loan program is offered exclusively to Goodshuffle Pro users, and includes awesome features such as zero interest, no credit check, and pay-as-you-earn repayment (to learn more, visit our Stripe Capital FAQ page).
Standard working capital loans are handy because there’s rarely any sort of restriction on how you use the funds. While getting investors on board with your company for funding purposes can be great, you don’t always want to dilute your business’s equity, nor do you want to add another decision-maker to your business. This is where loans come into play. Capital loans have no impact on your equity, and some institutions may not even require collateral. You can often get standard working capital loans within just a few business days after approval (our program can be as fast as next day!), which makes them ideal for funding surprise projects and events.
The downsides can be that repayment for standard working capital loans may include fees and/or interest, which can be high. Often, your payments will be taken directly out of your income, as well, which will cut into your bottom line for each job until the loan is paid off. While this is a huge benefit for event companies during the slow season, as you’ll be paying less on your loan when business is slow, capital loans can be a bad idea for meeting long-term, spendy goals (such as mortgages), as minimum payments may still be too high during the slow season.
To avoid financial headaches, it’s important to understand minimum payments and how much you can comfortably repay at any given time throughout the year before you commit to a loan. In general, it’s often a best practice to use these loans when you have a clear reason for needing the cash, such as a specific purchase (inventory, warehouse upgrade) or specific job (major event, new VIP client). These are classic examples of the old saying “Gotta spend money to make money”, as there is an ROI that makes the loan fees well worth it.
If you have yet to reach out to your local SBA branch, we encourage you to do so. They have many great resources for small to medium sized businesses (not limited to loans), some of which are free. One great program offered by the SBA are loans. These loans are either directly from the government, or as is more often the case for business loans, guaranteed by the government. The latter means that, if you take out a government-guaranteed loan through a bank or authorized lender, the government will be responsible for the balance if you default on your loan.
SBA loans have a wide array of options for loans, from long to short-term. They tend to have lower fees, competitive interest rates, and longer repayment terms than non-government guaranteed loans. Eligibility requirements can differ from standard loans. Generally, you must have invested equity into your business, your business must be for-profit, and it must be within the US. Some lenders may also require your business to show a strong revenue stream, be in business at least 2 years, and have a good credit score. Others may provide start-up capital, accept low credit scores, and require no capital. If you’re interested in SBA loans, we recommend setting up an appointment with your local SBA to discuss what you need out of a loan and see which local banks, credit union, and other lenders they suggest to meet your needs.
Unlike Capital Loans, these loans will require a lot of paperwork and a lot of time. These are more geared toward long-term business plans, rather than an immediate need for cash. For example, if your business plan shows you’ll be making very slim margins in the first year or two, but the margins grow after that, you might want to factor in a loan to pad your income.
Which loan type is right for you?
While we cannot make financial choices for you, we do have a few thoughts on the matter. If you’re looking to do major building renovations, buy or expand a warehouse, purchase heavy machinery, or buy a new vehicle, definitely consider taking a long-term SBA loan. You’ll likely see lower interest rates, low fees, and more flexible payment terms than from a standard working loan from a traditional lender.
If you need money fast for a project, event, or just to pay the bills during the slow season, capital loans are an excellent option to get you through. Capital loans are perfect for getting you through any income lulls until business picks back up. Additionally, programs like Goodshuffle Pro’s Stripe Capital loan program do not run credit checks (so it won’t ding your credit score) and a flat percentage of your income comes off every payment you receive, which means you won’t have to keep track of a loan bill. This also means that you’ll be paying less back during the slow season when funds are tight, and paying more when the cash is flowing. Taking advantage of capital loans can mean the difference between a growing and thriving event company— even during the slow season— and an event company that barely gets by and stagnates during slow times.
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Loans are issued by Celtic Bank, a Utah-Chartered Industrial Bank, Member FDIC. All loans subject to credit approval.