The Differences Between Large & Small Business Financing

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When you think about financing a business, it is easy to see why small businesses are often overlooked. There are many programs and assistance available for large companies that make them more attractive as potential partners.

However, the truth is that small business financing can be just as beneficial in some cases, making it worth taking the time to explore your options. This blog post compares and contrasts what makes each type of business appealing from a financial perspective so you can decide which one would suit your needs best.

The Difference Between Large and Small Business Financing

1. Business Assets

Large businesses can provide more assets when applying for financing, making them an appealing option. Collateral can be anything from property and equipment or even their contracts with other companies in the area.

Smaller businesses usually don’t have access to this type of collateral because it is hard to come by at a lower budget level. However, it is not impossible to secure funding, but more of a heads up of what you can expect.

You may have luck with finding businesses in the same industry or even other partners who are willing to contribute assets as collateral on your behalf. However, this type of financing will be complex for everyone involved, so try not to rely on it as a solution to your financing troubles.

2. Capital Cost

Both large and small businesses will need to provide capital for their funding, but the required amount can vary greatly. Large business financing options may require anywhere from $100,000 up to millions of dollars in some cases. Smaller companies do not always have this type of money readily available.

However, small business financing can be easier to acquire because the cost required is smaller in comparison. The average loan for a small company is around $35,000, with terms lasting anywhere from three years up to five depending on your needs and requirements.

3. Debt Vs. Equity

When you compare business loans with Lantern Business Capital, small businesses are often given the option of taking out a loan or acquiring an equity financing contract. According to Lantern by SoFi, “Loan terms require you to pay back your funding over time, whereas equity transactions involve selling off part of your business in exchange for money that can be used immediately.”

You may need to research which one would suit your needs best before you apply for financing. However, this is a decision that many small business owners are faced with, so it should not be too hard to find the answers once you start looking into your options further.

4. Loan Guarantee

Loan guarantee programs are a common feature of large business financing, but not for small companies. This loan’s main aim is to assist when it comes time to repay the debt in full.

The government offers this type of help because they recognize that sometimes businesses can run into cash flow problems due to their industry or other factors that are outside of their control. If you have this category of business, you may be able to secure a loan guarantee from the federal government, which would give you access to funding up to $35 million with terms lasting anywhere between five and ten years.

Conclusively, business financing large vs. small is not a black and white issue. Depending on your individual needs, you need to find the best option.