External financing can be a great way to help you reach your business goals, but with so many different terms, rates, and fees, it can be difficult to compare financing options. So, how much does a line of credit cost, and how does that compare to the cost of a term loan?

Term Loan Vs Line of Credit:Typical Uses

While they are both types of debt capital, lines of credit and term loans have very different uses in small business finance. For a deep dive into the differences between term loans and lines of credit, check out our article: Term Loans and Lines of Credit: What’s the Difference?

In general, lines of credit and term loans are best used for the following small business expenses:

Line of Credit

• Inventory
• Payroll
• Seasonal working capital
• Short term costs

Term Loan

• Equipment
• Real estate
• Start-up capital
• Larger costs
• Longer time needed to repay

Term Loan and Lines of Credit Cost Comparison

Interest rates

, annual fees, principal, and credit scores can make for a confusing time when it comes to comparing term loan and line of credit cost. To help you determine the best financing option for your business, we’ve broken the costs down into a side-by-side comparison.

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What is the Prime Interest Rate?

Prime or the prime interest rate

is the prevailing interest rate that traditional banks charge to customers with excellent credit scores. The prime rate is usually the same as the interest rate set by the US Federal Reserve. If your credit score could use some improvement, you will likely be charged more than prime.

Merchant Cash Advance (MCA)

Merchant Cash Advances or MCA are another common type of business financing. When a small business owner takes out a merchant cash advance, they’re given cash up front, which they repay through a predetermined percentage of their daily debit and credit card sales. This can be a great lending option for businesses with fairly stable debit and credit card sales, but it is also a common vehicle for predatory lending practices. If you are considering a Merchant Cash Advance, make sure you read and understand the terms carefully before agreeing to the loan.

Cost vs Flexibility

All three of these popular loan options have pros and cons that you need to consider before choosing a loan for your business. The chart below helps you consider the total cost of a loan verses the flexibility of it’s repayment terms (i.e. how much and how often you will make payments).

Which is Right for Your Business?

Comparing the cost of term loans and lines of credit can feel a bit like comparing an apple and an orange. If you are considering an MCA as well, the decision can get even more confusing. The best way to decide what is right for your business is to start with what your business can afford in terms of monthly or weekly payments, what the loan will be used for, and what loan terms work best for your business’s financial situation. Once you have that list, you can start comparing it to different financing options to find the best fit for your business.

Financing with Accion Opportunity Fund

If you do decide that a term loan is right for you and your business, consider working with Accion Opportunity Fund. At Accion Opportunity Fund, our goal is not only to help you get the funding and support you need to launch your business, but to help you grow and thrive once you’ve got your foot in the door. Accion Opportunity Fund is a government-regulated, non-profit financial institution with a mission to help small business owners reach their goals. Find out more about our small business loan program and apply online today.

Disclaimer: Average interest rates and typical loan terms can change rapidly, so please thoroughly check with any provider to confirm rates and terms.

Learn More About Business Financing

When it comes to your finances, you want clear guidance and easy to implement tools based on your unique needs. Visit Accion Opportunity Fund. to get started strengthening your financial management and meeting your goals.

Experience a different kind of financial education. Learn with AOF has flexible, on-demand courses developed by small business owners, for small business owners. Learn on your schedule, with no time commitment or limit. Save your progress any time to fit courses into your busy schedule.

One of the most challenging parts of opening a restaurant is finding the right space. Here are three important considerations to make as you search for the perfect space for your restaurant:

 

Demographics and neighborhoods

Figure out who your target audience is based on the type of restaurant you’re opening. Are you opening a taco spot that caters to an office lunch crowd? Is the perfect space for your restaurant near a waterfront because your menu will feature seafood? Think through these customer characteristics when finding the right space:

• Age range
• Income level
• Lifestyle
• Willingness to travel to the location
• Dietary restrictions or priorities

Once you know who your target audience is, look for a space in the neighborhoods where your ideal customer is likely to be. Another thing to keep in mind is how the location and zoning will affect your business legally. Be sure to consult an attorney once you think you’ve found the perfect space for your restaurant – the legal details can make or break the deal.

 

Foot traffic and transportation

Think about how much effort it will take for people to get to your restaurant. Is it easy to park? Is there public transportation that makes it easy to get to? Is there foot traffic that will drive walk-ins? Tie this back to your ideal customer – it only matters that the space offers tons of parking if your customers are actually likely to drive to your restaurants. Conversely, being right next to a public transportation stop will really help drive business, but only if your target customers are frequent public transport riders.

 

Value for your money

When you’re considering a space, think about how cost-effective it will be. Is it already outfitted to be a restaurant? Will you have to remodel? For example, if there are floors above your unit, you will have to install an exhaust system, which can be a costly renovation. A restaurant build-out process can take months and cost tens of thousands of dollars. It’s a big commitment, but it could be worth it for the perfect space for your restaurant. Just make sure you know your budget, understand your cash flow situation, and are financially ready for whatever you decide.

Have you ever thought about running your own restaurant? Whether you’re a great cook who wants to feed the world or a foodie who wants to raise the bar, opening a restaurant is an exciting challenge.

That being said, opening a restaurant is hard work. It can be a roll-the-dice business venture. The restaurant world is fickle and it can be costly to open and run a new eatery. But that doesn’t mean it can’t be done – it’s all about what you put into it.

With hard work, planning, and the proper financial backing, your dream of opening a restaurant can become a reality. Here are some of the big hurdles you’ll need to clear before you can serve your first meal:

 

Research The Cost

Before you dive in with both feet (or even dip a toe in the water), you should plan out exactly how much your new business venture will cost and how much money you currently have access to. You’ll need to do your homework and run the numbers. You can find mentors in your area who will be willing to talk about what to expect as far as the cost of opening a restaurant.

You’ll need to look at the large fixed costs – rent, insurance, permits, staffing. Then you’ll have to consider the variable costs – utilities, food supply, liquor. Then, take a look at how much money you have to work with. Consider your savings and any contributions your family or friends may be willing to make. In addition, you’ll want to start reaching out to local banks, microlenders, and the SBA to learn about potential financing options.

 

Prepare Your Business Plan

Once you have a rough budget, it’s time to put together your firm business plan. Your business plan is your model and your roadmap. Your restaurant business plan can include:

• A design concept for your space
• Target customers
• A complete financial picture
• Start-up capital and funding needs
• Marketing plans
• Plans for hiring and staffing
• Plans for food supply
• Licensing issues

The business plan is one of the most important parts of starting a restaurant or any other business.

 

Franchise Or Independent?

As you create your business plan, one of the first things you’ll need to decide is whether to open a franchise or strike out on your own. Opening a “franchise” means opening a chain restaurant using their branding, supplies, and systems. McDonald’s, for example, is a franchise. Typically you’ll need to pay an initial franchise fee to open and then annually. In addition, you may need to attend training courses offered through the parent company. You get the expertise and the marketing budget of a well-established brand, but you typically won’t get to make many decisions about how the restaurant is run. Opening a franchise can be expensive – some chains may have financing options, but many require you to pay up front. For example, opening a McDonald’s will cost you more than $1 million total, and you’ll have to pay about $45,000 up front.

You can open an independent restaurant for much less, but it can be tough if you have no experience. In any case, you can start with a small space, a manageable menu, and rented equipment. With a smaller space, you can focus on the food and expand later. That way, you can get your restaurant off-the-ground and keep your initial costs from sinking you at the outset. Keep costs manageable and focus on making the food memorable. If you’re independent, you have the freedom to control your own menu, hours, and atmosphere.

 

Get Funding

Opening a restaurant costs money – you’ll need to lease or buy a space, get equipment and supplies, market your new eatery, and pay for licenses and permits. You may have enough in savings to cover some or all of the cost, but you’ll need financing for the rest. Once you have a detailed business plan, you know exactly how much money you need to get up and running – and how much you expect to make. Take that business plan to the bank, the SBA, and microlenders to learn what financing they can offer you. Their offers will depend on your business history, your credit score, your business plan, and other factors, so shop around to make sure you’re getting the best possible deal. You may be able to take out loans or, in some cases, you may qualify for governmental grants to help you get started.

Note that you may be able to get a loan for an established franchise more easily than for an independent restaurant venture, but you’ll typically have to borrow a much larger amount.

 

Find The Right Space

Finding a space that has the right feel, can accommodate your kitchen and dining room needs, and has the right mix of foot or auto traffic can be a process. You’ll want to take the time to research your space needs, local licensing requirements, and the neighborhood. Of course, you’ll also need to find a location that meets your budget.

Finding the perfect space is a tall order. Here is a worthwhile article on the tricks to finding the perfect space for your restaurant.

 

Licenses And Permits

Since you’ll be serving food and alcohol, you’ll need to obtain the required permits and licenses from state, local, and federal governments.

Most areas will require a health inspection before granting a license. You’ll need to ensure that your planned kitchen and dining room layout meet the health codes and laws. Codes and laws differ from jurisdiction to jurisdiction, so do your homework to make sure you’re in compliance. A local restaurant association can often provide information about required permits and licenses.

 

The Bottom Line

These are the boxes you’ll need to tick before you can get ready to open your doors. From here, it’s all about stocking your kitchen, hiring staff, and firing up the stoves! For those considering starting a brewery, www.startabrewery.com is a great resource to learn more about the specific needs of new breweries.

Bon appetit!

 

You’re planning to open your own retail business. Congratulations! That’s a big step and an exciting venture. Of course, it’s also a little scary. There’s a lot to do! That’s why we put together this handy list to help you learn how to start a brick-and-mortar business.

1. Your Product Or Service

The first step to opening a brick & mortar shop is deciding what products and merchandise you will carry or which services you will provide.

What are your hobbies and interests? If you’re a foodie, a gourmet store may appeal to you. If you’re an oenophile, then a wine and spirits shop might be up your alley. An animal lover might want to open a pet supply shop. You don’t have to be an expert in your prospective product or service, but having an interest in it will make your work life more fun.

2. A Business Plan

Your business plan is your guide for your company’s future. It acts a road map and can help you secure funding. By drafting a plan, you solidify your goals and plans for the future, as well as map out how you’ll overcome the challenges along the way.

When you create a business plan, you force yourself to think critically about how your business is actually going to run. You’ll need to decide exactly what products and services you’ll be selling. If you’re opening a beauty shop, for example, what will you offer? Do you want to provide haircuts and color? What about nails and makeup? Will you sell beauty products as well? It’s tempting to take on too much, so make an honest assessment of the time, space, and expertise you can bring to the table.

To complete your business plan, you’ll also need to figure out your supply chain – where you’ll get all of the products you’re selling. If you plan to sell hair care products at your beauty salon, where will you get them? Where will you purchase the scissors and combs? What about the hair color?

In addition to determining exactly what you’ll sell and what supplies you need, you’ll need to determine what prices you’ll be charging, estimate how much money you’ll be making, and work out your costs for the supplies and equipment. For pricing ideas, you can look to competitors both online and in the local area. You can also shop around online with different suppliers to nail down your costs.

If you’re already running a business from home, you probably have a lot of this information available already. However, you still need a business plan to address how you’re going to expand and how you’ll cover the added costs of running a storefront.

When you have all of these details worked out, you can use that budget to determine how much space you can afford to lease or buy. You’ll also use the business plan to get financing in the form of loans or investments.

3. Financing

Now you know how much money you’re going to need, so the next step on the way to opening your brick & mortar store is actually getting that money. There are many SBA-supported loan options available to small businesses as they get off the ground. Microloans from lenders such as Accion are also available to help you get started.

When you’re getting financing, remember to address all of your costs. That includes a storefront, equipment, supplies, and staff. Once you have financing in place, you can get to work on the store itself.

4. Location

You know what you’re going to be selling. You know where you’re going to get your supplies. You have the money you need. Now it’s time to find a storefront. You can either lease or buy commercial space. Leasing is often more affordable and gives you the flexibility to move if the space doesn’t work for you or if you need to expand. It also gives you the benefit of a management company who will maintain the building for you so you don’t have to deal with fixing leaks or other problems. Buying a property is usually much more expensive and less flexible – you own it and you can’t just walk away. It will also require getting a large mortgage loan. However, you’ll build valuable equity in the building over time and you’ll have complete control over the space.

Whether you decide to lease or buy, you’ll have to choose a building. That means reaching out to a local commercial realtor to find a space that’s right for you. The cry of the realtor is, “location, location, location” – and the adage proves true. The location of your business is crucial to its success.

Look for:

• Style: Do you need a formal location? Or a more casual one? A professional front may be necessary for a law office or accountant, whereas a frozen yogurt shop owner would look for a more relaxed space near other consumer-goods shops.
• Zoning And Codes: Some cities and states have zoning restrictions that limit what kinds of businesses can operate in certain areas. For example, some areas may be reserved for retail while others are reserved for food services. You’ll need to talk to your realtor about the zoning restrictions that may affect your business.
• Demographics: Who are your customers? Is your location close to your intended demographic? If you’re looking to attract young families for a baby clothes shop, then you’ll want to ensure that young families are close by or can travel via car or other mode of transport.
• Visibililty: Will your storefront or sign be easily visible from nearby roads? Is there a lot of foot traffic in that area? Will people be able to find it?
• Parking and Access: Is there sufficient parking? Can you make the building ADA compliant for those who need disability access?
• Infrastructure: Can the store support your business needs? A bakery will need access to a commercial kitchen or the room to install one. Look around with a critical eye to determine that this commercial space will be able to handle the demands of your business.
• Competition: Is your location close to other vendors in the same industry? You don’t want to find a space that’s already in a saturated market.
• Room to Grow: You can get more and larger space than you likely have available at home, so when you need to expand, you can.

When you visit potential locations, put yourself in your target customer’s shoes. Would you stop in to shop there? Could you see the shop from the road? Is it easy to get to or is it hidden and out-of-the-way? Pick a place that makes it easy for your customer to come to you.

5. A Commercial Lease

If you’re renting a space for your brick & mortar store, you’ll need to sign a commercial lease. They’re more complicated than residential leases and are typically for a longer-term – often 3 or more years. A commercial lease will define what you and the landlord are responsible for in terms of maintenance and upkeep.

Most commercial leases also involve remodeling the space to fit your needs as a new tenant. When you negotiate the lease, you’ll negotiate the terms of these renovations. In many cases, the landlord will have contractors on hand to do that type of work and your lease will be adjusted to reflect the cost. For example, the base rent (with no improvements) might be $10 per square foot, but you’ll pay $11 per square foot over the lease term to cover the cost of the improvements.

A commercial lease can be intimidating, so make sure to ask your realtor any questions you have about the terms of the lease and what they mean for you. Make sure you completely understand it before signing.

As you work on getting a commercial lease, remember the timing. You want to be able to open as quickly as possible once the lease starts so that you’re not paying rent for a store that isn’t open.

6. Licensing

Most states require you obtain an Employer Identification Number (EIN) and obtain a sales license for retail stores. This number is necessary for reporting taxes to the IRS. If you have a business bank account, you probably already have an EIN.

If you’re planning to offer a service, such as a hair salon or pet grooming business, you’ll need to obtain the certifications and licenses that your state requires. Check your state’s website for applicable information about the necessary licensure and certifications. In some cases, you may need to take a certification course in order to get approval. For example, you may need to take a course in food safety before you can open a café.

7. Equipment And Supplies

You have your business plan, your financing, your storefront, and your license. Now you need the supplies to actually run your business. You created a budget in your business plan for the equipment you need, so stick to that budget. You may be able to save money by purchasing used equipment or by leasing equipment rather than purchasing it.

In addition to the equipment, you’ll need supplies. This is also in your business plan and you’ve accounted for it in your financing, so all you have to do is stick to the budget.

8. Staff Up

Before you can open your doors, you’ll need staff. In some cases, you may be able to hold down the fort alone. However, that can be tough if you want to stay open 7 days a week or if you ever get sick or want to travel. You may choose to hire help to spread the workload and make sure everything gets covered. There’s a lot to manage – inventory, bookkeeping, marketing, hiring, and actually interacting with the customers. As always, you’ll need to consult your business plan and budget to determine how many employees you can hire.

You’ll need to report any employees to your state within 20 days of hire. The reporting requirements vary, but in general, it’s information like your employee’s name, address, Social Security number, and your EIN.

Check out the law surrounding employees in your state- the minimum wage, how many hours they can work a week, and whether you need to provide them with benefits.

Once you’ve made your hires, train your employees for their jobs and get ready to open the doors!

9. Spread The Word

There’s one last thing to do before you can open your brick & mortar store for business – you have to let people know about it! You can use word of mouth and your personal social media presence to tell your family and extended network of friends. You may decide to print up flyers or put an ad in the local paper.

You should also start up a digital marketing effort. You can create social media profiles for your business and use them to interact with customers. You may want to start a website – even brick & mortar stores benefit from increased visibility on the web. You can use your digital presence to post ads and share promotions, too.

When you’re getting ready to open, consider making an event out of it. Invite people in the community to come in for your Grand Opening and learn about you and your business.

10. The Grand Opening

You’re ready – your store is set up, your supplies are ready, your employees are trained, and it’s time to open your doors. It takes some legwork to get to this point, but now you’re running your very own brick & mortar store. Congratulations!

Whether your business deals with professional services, fashion, food, or flowers, it’s highly likely your customers want the option to purchase your products and services online. Even if you have a brick and mortar business, selling online will keep you competitive. If your business isn’t already set up to take online payments, here’s how to get started.

Choose an e-Commerce Platform

If you’re selling merchandise, there are two ways to go. You can put the items up for sale through an online marketplace such as eBay, Amazon, or Etsy, or create your own standalone online store. This overview of How to Sell Products Online can help you figure out which alternative works best for you

If you decide to sell through an established marketplace like Amazon, you won’t need to worry about payment processing yourself. If you sell through your own website, you’ll need a way to allow customers to order and pay.

Options for Accepting Online Payments

If you’re putting together your own website instead of hiring a web design firm to do it for you, there are several pre-packaged solutions available.

Chances are good that your web host offers tools to incorporate a shopping cart and payment system into your site. There are also templates for store designs and features such as secure checkout, options for shipping, and calculations for sales tax. PC Magazine ranked the best web hosting services, and included a list of their various features for comparison. You can also check out Lifehacker’s 5 Best Places to Set Up Shop Online.

Depending on where your site is hosted, you may be able to choose from different free and paid options for a shopping cart. osCommerce is a shopping cart that works with many web hosts and gets good reviews. It offers over 7,000 add-ons built by members of its user community to help you customize your store.

Payment Processors

Perhaps even more important than the cart is the payment processor that goes with it-once people pick things out, they need a way to pay for them. This is the real business end of the transaction, allowing you to accept credit cards, validate the information, collect the money, and get it deposited into your bank account.

From a customer’s point of view, this step is also the most critical. Shoppers want something easy and intuitive to use, but most importantly, it must be a secure gateway that adequately protects their personal information. Choices include:

PayPal accepts all major credit cards and works with most major shopping cart programs. There aren’t any charges to get set up or maintain your account, but the service will take from 2.2% to 2.9% plus 30 cents per transaction, with the actual amount based on your monthly sales volume. One downside of PayPal is it takes users away from your site to theirs in order to complete the transaction.

Authorize.net is another popular solution. It costs $99 to set up, and carries a monthly fee of $20, with a per transaction cost of 10 cents. Authorize.net allows you to accept payments online, through the mail, via telephone, in your store, and through a mobile app.

Stripe is customizable for online storefronts, mobile apps, subscription services, and more. There’s no setup fee and no monthly charge. They take a flat 2.9% plus 30 cents for each transaction. If you refund a purchase, you get the transaction fee returned.

10 Questions to Ask When You Evaluate Online Payment Vendors

With so many options, it can be difficult to make a choice. Here are the most important things to keep in mind when deciding:

1. What are the costs involved with setting up and using the service?
2. How tech savvy do you have to be to use it? Or would you rather have a web developer set it up for you?
3. If you want or need to accept international payments or non-U.S. credit cards, does the payment gateway support that?
4. Does the customer stay on your site to complete the transaction or do they have to go to the payment processor’s site? (This can increase the number of abandoned shopping carts.)
5. How quickly will the funds be available to you? Many gateways place a hold of up to two (or more) days.
6. Do you need a separate merchant account with a bank to receive payments?
7. Can you set up recurring payments? (This may be especially important for service companies and those who want to automate reorders.)
8. Are there stipulations on what you can sell? (Some gateways limit their services to hard goods.)
9. What kind of customer support is offered? How quickly are issues addressed and problems solved?
10. What kind of guarantees are offered for the security of your customers’ credit and other personal information?

If you feel at all discouraged, remember this: it’s easy to sell things on the Internet-lots of people do it. Once you make the decision to create your own store or to use a marketplace, it’s only a few short steps to selling your goods or services online.