Tens of thousands of people around America and the world look for small business financing options every year. And the good news is that most entrepreneurs manage to raise funds for their startups. In fact, small businesses account for 99.9% of all businesses in the USA.
While it takes many resources to establish a new business, the most important of these is funding. Raising enough money is crucial to launch your business and steer it to success. If you’re looking for small business funding options, this post has you covered.
Here’re 8 small business financing options you can try:
1. Savings
As per Forbes, most startup founders utilize their personal savings to fund their businesses. Most startups, however, are not profitable for months after their launch. As such, entrepreneurs are advised to set aside enough funds to manage their day-to-day expenses for at least a year.
The following are some tips, courtesy of the SBA, to help you save enough money to start your small business.
- Reduce your credit card debt. Request a lower interest rate from your bank.
- Set up an automatic deduction to your savings account.
- Unsubscribe from any service you are not using, such as gym memberships, car-sharing memberships, etc.
- Use services like “You Need a Budget” to set up your budget and organize your expenses.
- Purchase used items as they are cheaper.
Check out these tips to save money and live a prosperous life.
2. Personal Loans
It is a good idea to get personal loans from your family and friends to kick off your business. But remember to put all the terms and conditions of the loan into writing.
Transparency is critical to avoid any issues in the future. Discuss the amount, the time duration for repayment, the interest rate, and more in a legal document for smoother processing.
3. Credit Cards
Credit cards, either personal or business credit cards, work great for funding small businesses. But, you must choose this option wisely because credit cards come with high interest rates.
Higher interest rates may result in an increased monthly balance, ending up with a debt balance that is much higher than initially anticipated. Unexpected additional expenses and hidden charges may potentially ruin your business prospects.
If, however, credit cards are your choice of funding your business, be sure to opt for one that charges the lowest interest rate and has flexible repayment terms.
4. Bank Loans
When it comes to small businesses, bank loans are not guaranteed because banks look into multiple factors before approving a loan.
For example, you need to have excellent credit scores, a sound business plan, and more to secure small business loans. They may even require you to invest a portion of your own money into the business to prove your commitment to the cause.
It is a good idea to go to the bank when you already maintain an account, as they are already familiarized with your banking history.
Besides your personal bank, you can look into banks with a history of lending support to small businesses. We recommend choosing an SBA-guaranteed lender to improve your chances of getting a small business loan.
5. Venture Capital and Angel Investors
High-growth companies or ones that are already profitable in terms of cash flow are best suited for venture capital and angel investing.
Every investor has a preference and specialty in terms of industry and region. To attract investment from these potential stakeholders, you must create a unique idea and solid business plan.
The SBA facilitates meetings and discussions with potential private investors through its SBIC program. SBIC investments typically work in one of the three following ways:
- Loans between $250,000 and $10 million with a 9 to 16% interest rate.
- Equity in the form of money for your small business in exchange for a share of ownership and control; the amount may range between $100,000 and $5 million.
- Loans and equity, including loans with a 10 to 14% interest rate, and investments between $250,000 and $10 million.
6. Government Programs
To find government grants for your small business, you’ll have to do some background research to stumble upon the right fit. The good news is that many government business grants are available for different groups, such as women, minorities, veterans, economically disadvantaged individuals, and more.
7. Corporate Programs
Corporate funding often involves low-interest financing, which can benefit small business owners who may not qualify for traditional credit sources.
Consider Goldman Sachs’ program for small businesses to secure loans if the standard credit line doesn’t support them.
8. Crowdfunding and Crowdlending
Crowdfunding is just as it sounds like. It involves pitching your idea to people on crowdfunding websites and then getting them to fund your project. In return for the money, you can give them a gift or the product you’re seeking funding for.
On the other hand, crowdlending works in a similar manner, except that you have to pay back the funding parties. Some popular picks for crowdfunding and crowdlending sites include Kickstarter, Indiegogo, Kiva Zip, Accion, and AngelList.
Parting Thoughts
You need $3,000 on average to launch a small business (home-based, minimal startup cost, run by the owner), as per the SBA. These small business financing options are sure to improve your prospect of getting your business off the ground. And once it is up and running, you can easily secure more financing to grow and scale your business.
