Small Business Loan Options in Delaware

Delaware is considered a great state for launching a business. It’s even earned the nickname “The Corporate Capital.” But both new and existing small businesses often face a common problem: difficulty getting access to capital. One report, for example, found that “58% of 0–2 year old firms and 53% of 3–5 year old firms reported difficulty with credit availability or accessing funds for expansion.” 

If your small business is located in the state of Delaware, make sure you explore the full range of small business loans and funding options so you can get the right financing for your business. 

How a Small Business Loan Can Help Your Delaware Small Business

There are numerous ways financing can help your small business grow or expand. You can use financing to: 

  • Increase the number of workers
  • Improve employee benefits
  • Add new products to your product line
  • Purchase inventory 
  • Take advantage of discounts on supplies 
  • Increase online marketing campaigns
  • Acquire or upgrade equipment 
  • Move into a bricks and mortar location

These are just a few examples. Many business owners also use financing for working capital, to smooth out cash flow when sales are slow or customers pay slowly. 

Unfortunately, if you  don’t know what types of financing you can get, you may not apply or you may not get as much money as you need. This can prevent your small businesses from growing as fast as it could if the right financing were available. 

Types of Small Business Loans to Choose From

With so many different types of small business loans available, it can be hard to navigate your options. Here are some of the most popular types of financing used by small business owners: 

Lines of credit

If you need short-term financing, a line of credit can be a great loan option. Lines of credit allow borrowers to have access to a set credit amount and they can then borrow against as needed. As funds are repaid, they become available again to borrow. (Your credit card is a great example of a line of credit.) 

Term loans

For entrepreneurs that want a loan with more time to pay it back, a term loan may be the right choice. Term loans are typically paid back over the course of 2-5 years, though some can go as long as 20—25 years. Payments are often fixed, or at least won’t fluctuate significantly. These loans are popular for specific projects over longer periods of time. 

Business credit cards

A business credit card are popular for the perks they offer, but they can also be a great way for entrepreneurs to get access to funds quickly. That’s because many offer access to a line of credit. They are also often available to newer businesses as long as the business owner has good personal credit and sufficient income from all sources. Many small business credit cards can also help you build your business credit score. 

Commercial real estate loans

This is exactly what it sounds like: commercial real estate loans are designed for commercial real estate projects such as a new location for a storefront, restaurant or commercial facility, or for expansion or renovation of existing real estate. Terms will vary, but interest rates are often attractive and repayment terms are often spread out over a longer period of time. 

Crowdfunding 

Many people have heard about crowdfunding but don’t realize that there are different types of crowdfunding, each with unique advantages. Top types of crowdfunding for small business include loan-based crowdfunding, rewards-based crowdfunding and investment-based crowdfunding. 

Equipment financing or leasing

Need equipment in your business? Whether it’s IT or heavy equipment, you may be able to use equipment financing or leasing to help preserve cash flow. You may even be able to take advantage of lucrative tax benefits. 

Invoice factoring or financing

Invoice factoring or financing is not for every business. In order to use this type of financing you typically need to be selling goods or services to another business, and you need to be willing to give up a portion of that invoice in order to get the money owed your business more quickly. In a factoring arrangement, you sell or assign your invoices to another company at a discounted rate in exchange for cash now. The third party company then collects the invoiced amount from the company that owes you money. Alternatively, invoices can be used to underwrite financing. 

Merchant cash advance

If your business has strong sales, but can’t access more traditional funding for some reason, you may want to look into merchant cash advances or business cash advances. This type of financing evaluates your past sales to advance you funding against future sales. Weekly or even daily payments may be required. 

Microloans 

Another popular type of funding for those that can’t access traditional funding: microloans. Microloans are typically smaller loans often made by non-profit lenders to business owners who are traditionally disadvantaged (minority-owned, woman-owned, veteran-owned or rural businesses for example). Typically companies that offer microloans also provide business owners with additional resources, including mentoring, to help them succeed.

SBA Loans

The U.S. Small Business Administration has an extensive SBA loan program. These include 7(a) loans, SBA Microloans, Export loans and more. These loans are made by lenders approved by the SBA, providing the lender with a guaranty if the borrower doesn’t pay it back. In other words, you don’t apply for an SBA loan on the SBA’s website. 

There’s one exception though: if your business needs a Disaster loan you can apply directly through the SBA at SBA.gov. 

Small Business Loan Options for Delaware

If you own a small business in Delaware you can certainly start your search for financing with local banks or credit unions. But if that’s not a fit, you can explore other options: 

Line of credit

Term loans

Commercial real estate loans

Equipment financing and leasing

Invoice financing

Business cash advance

What it Takes to Get Approved for a Small Business Loan

Once you decide the type of loan you want, you still need to apply and get approved. So what does it take to get approved for a small business loan? Typically a lender is going to look at the following factors:

  • Revenues
  • Credit scores
  • Age of business 
  • Industry

Revenues

One factor that will play a key role in getting approved for a loan is your business revenues. That’s because lenders want to make sure you can repay the loan. Most will require business bank account statements to verify revenues. In addition, some may require financial statements and/or business tax returns. 

Credit 

Good personal and/or business credit scores give you more options and can help you qualify for some of the best business financing, including bank loans and SBA loans.

However, if you don’t have good credit,  that doesn’t necessarily mean you can’t get financing. With a lower credit score you may have to look into less traditional financing such as merchant cash advances, invoice factoring or financing, microloans, or crowdfunding as these types of financing rely less heavily on credit scores. 

Age of business

Often the age of a business can affect how easy or hard it is to get funding. More established companies (two years old or older) have an easier time getting funding while businesses under the two year mark have a more difficult time. 

If you have a very young business or a startup, you may need to consider funding options such as business credit cards, crowdfunding or microloans. Some SBA loans are available to startups as well. 

Industry

For some small businesses the industry they are in will limit their lending options. Lenders typically have industries they don’t want to lend into, and ones they do. Industry codes such as SIC or NAICS codes may appear on credit reports so be sure to check yours are accurate. 

How to Choose the Right Loan for Your Delaware Small Business

The loan that will be the best fit for your small business depends on multiple factors, but some of things you will want to think about are: 

  1. How much you need to borrow
  2. Whether you need short or long-term financing
  3. How you’ll use the funds
  4. How much time you need to repay the financing

A small business loan should be helping you grow your business, and not jeopardize cash flow to the point that you have to borrow just to make the payments. If you’re not comfortable answering these questions, talk to your accountant and advisors. 

Small Business Grant Options for Delaware

Ask any entrepreneur whether they’d like free money for their business and they’ll stay “sure.” That’s essentially what small business grants are – money that doesn’t have to be paid back. Unfortunately the reality is that it takes time and effort to land a small business grant, and even then there’s no guarantee you’ll get enough money to accomplish your business goals.

If you identify small business grants that are a good fit, then by all means go for it. Just don’t pin all your hopes on getting a grant as they are often very competitive. 

Here are a couple of Delaware grant resources worth checking out:

The Delaware Division of Small Business awards EDGE Grants through a competitive selection process. STEM-based companies can receive up to $100,000 for eligible expenses. Entrepreneur Class (non-STEM) businesses can get up to $50,000. Learn more and apply here. 

Delaware Relief Grants provide assistance for businesses impacted by the coronavirus pandemic. (In addition, the federal government offered CARES Act funding in the form of forgivable Paycheck Protection Program “PPP” loans and Economic Injury Disaster Loans and EIDL Targeted Grants.) While these programs expired, it’s worth bookmarking that website to learn about new initiatives in the event of a future economic crisis. 

You can look for grants at sites such as Grants.gov, Opengrants.io and Grantwatch.com

Additional Resources for Delaware Small Businesses

Too many business owners overlook free programs that can help their businesses succeed. Don’t be one of them! Reach out to the following organizations and get the assistance your business needs. 

Delaware Division of Business

Start your search for small business resources on the Delaware.gov website. There you’ll find information about the programs available from nearly 100 organizations, including nonprofits and government agencies, providing all kinds of support for Delaware’s small business owners and entrepreneurs. Fill out a form with just five questions and you’ll get recommendations on which organizations will best be able to assist you. 

Delaware Small Business Development Center

Free business mentoring is available from the Delaware Small Business Development Center (SBDC). Get help creating your business plan, market research, marketing strategy, landing government contracts and more. You can read compelling  client success stories on their website if you want further proof of the good work the Delaware SBDC does.

Delaware SCORE

SCORE provides free business mentoring and helpful webinars and workshops on all aspects of business. The Delaware chapter of SCORE was rated at the “platinum” level for 2020. You can get valuable assistance with your business from SCORE mentors. 

Delaware Prosperity Partnership

Delaware Prosperity Partnership (DPP) is the state’s nonprofit economic development agency. It’s focused on attracting new businesses as well as expanding and retaining current businesses in the state. 

This article was originally written on March 8, 2022.

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