ESL Lesson Plan: Business Loans and Cash Advances

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How to Get Money for your Business in the United States

In the United States, you can start a business with someone else’s money. You can go to a bank to get money, or you can ask other people or companies for money. After you start your business, you might still need someone else’s money to keep your business running.

Of course, no one (except maybe friends or family) gives money away for free. When you use someone else’s money, you have to pay more back than you originally received.

The more you study the following words, the better you will do at our games and the better you will understand the process of getting money for your business in the United States!

Before you take our fill-in-the blank quiz and play our popular game, “Bee the Broker”, study the following vocabulary and learn about different types of loans and advances!

New Vocabulary

capital: money invested in a business to help it grow
borrow: to take get something with the agreement to give it back later
loan: a lender gives money to a borrower, with the agreement that the borrower will repay the money, in most cases with interest
principal: amount given by the lender
interest: money paid back in addition to the principal
interest rate: interest expressed as percentage of principal
collateral: something with value (e.g. car, house, etc.) that lender can take if borrower cannot pay back loan
fee: money paid for a service; extra charge
fixed rate: loan agreement in which interest remains the same throughout repayment period
variable rate: loan agreement in which interest payments are adjusted according to certain conditions
repayment period: amount of time agreed upon that loan should be paid off
APR (annual percentage rate): interest rate calculated over one year
credit score: a number between 300 and 850 that reflects how good your credit is; generally above 700 is a good score
credit history: record of debt over time; measures amount of borrowing and how you’ve paid off debt
startup: a small company starting an original type of business
B2B: business-to-business; a business that sells to other businesses
B2C: business-to-consumer; a business that sells directly to consumers
cash flow: amount of cash available for use
factoring: selling of unpaid invoices at a discount in exchange for immediate cash flow
accounts receivable: money owed to a company by its debtors; invoices from customers that have NOT been paid
advance: amount paid or received before the agreed upon action is completed

FILL-IN-THE-BLANK QUIZ!

Directions: Type your answers into the corresponding boxes. As you can see, only 3 out of the 4 words will be correct. Make sure to spell each word correctly!

1) It is very difficult for a company to get a . This is because new businesses usually don't have a long .

loan
credit history
fee
startup

2) companies sell to other businesses, while companies sell to customers. Both of these types of companies need in order to maintain and grow their businesses.

capital
B2C
APR
B2B

3) When paying off a loan, you are paying the , . By calculating these payments over the course of your , you can determine your APR.

principal
loan
repayment period
interest rate

4) To get a bank loan, you must have a good . , probably above 700. This will help you get cheaper in the future.

credit score
loans
credit history
cash flow

5) B2B companies often allow their customers to pay later, which means there will be many invoices that have not been paid. This means that a company’s worth is based partly on , a value that hasn’t yet turned to cash. is a good alternative to loans for this type of company because they can get a cash immediately based on the money they are owed in the future.

factoring
accounts receivable
B2C
advance

Click "CHECK ALL" to see how you did!

Are you done with the “Fill-in-the-blank quiz”?, let’s keep learning…

In the United States, there are different ways to get money for your business. However, first you should ask yourself the following questions:

Why do I need money?
What kind of company do I own?
For how long has my company been in business?
How is my credit score?
Can I put down collateral?

Based on the answers to these questions, you can determine the best way to get money for your business. You have two general options: take out a loan or receive an advance. But as you know, finance is always complicated! Within each category, many types exist.

Loans

Traditional Bank Loans
Lines of Credit
Online Loans

Cash Advances

Merchant Cash Advance
Factoring

Loans

Traditional Bank Loan

Good for long-term business investment
Established B2B or B2C company
Business is 3+ years old; must provide evidence of good accounting practices
Must have good credit score, around 700 or above
Able to provide significant collateral

Business Lines of Credit

Good when uncertain about future costs of business; Access to a maximum loan amount, borrower decides how much to take
Established B2B or B2C company
Business is 2+ years old
Must have good credit score, around 700 or above
May or may not require collateral; cheaper loan if collateral provided

Online Term Loans

Can provide cash flow for ANY reason
Can serve ANY type of business; much more expensive than a traditional bank loan; only businesses who CANNOT get a traditional bank loan should pursue an online term loan
Most online lenders only require that you’ve been in business for about 6 months or so
Credit score not that important
May require collateral or personal guarantee (legally you must pay)

Cash Advances

Merchant Cash Advances

Provides cash flow to cover immediate expenses
Effective for B2C companies; VERY expensive (up to 45% interest!); only businesses who CANNOT get a traditional bank loan should pursue a Merchant Cash Advance
MCA providers don’t require many years in business, but they want to see evidence of future expected sales
Credit score not important
Does NOT require collateral because they already OWN part of your FUTURE sales (will collect repayment from your credit card sales)

Invoice Factoring

Good for businesses who need immediate cash flow to cover expenses
Effective for B2B companies; factoring companies buy your accounts receivable and advance you cash immediately (usually about 75-95%) until the accounts receivable are paid; then the factoring company pays you the rest of the receivable value, minus fees (in total, about 3% of the invoice)
Factoring companies want to see that you have a variety of customers with many accounts receivable; they also want to see that your customers are likely to make payments when they are due
Neither credit history nor credit score is important
Does NOT require collateral because they already OWN your accounts receivable; may require you to pay if your customer does not pay

Congratulations! Now you’re ready to play Bee the Broker ! We challenge you to test your knowledge of loans and cash advances.

Author: Jeffrey Shai Kreithen

About the Author: Jeffrey Shai Kreithen holds a Master of Arts in English Education from Columbia University. He has worked as a Professor of English at universities in the United States and abroad. Currently he develops content for the Red Cross and for several financial websites.