ESL Lesson Plan: Business Loans and Cash Advances

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!

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!

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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 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 . Jeffrey's LinkedIn