Accounting & Finance
Keep Your Dream Alive: Small Business Funding Options
You can spend all day planning out your dream business, but when it comes to financing, you find yourself at a dead end. Small business is vital for our economy, but it can seem challenging to make that leap.
With these funding options, let your worries melt away and get that much closer to making your dream a reality! These small business funding options are sure to get you there.
Credit Cards for Small Businesses
Just like a personal credit card, this option gives you a revolving line of credit. You will be approved for a set amount of money. As you pay off that debt, you will be able to use the credit again.
You will need to make a minimum monthly payment. The great thing about a small business credit card is that you are only responsible for what you spend. Access to money on an as-needed basis is always a great fall back too.
If you use these cards the right way, they can boost your credit score and offer great rewards in return. However, if used irresponsibly, they can hurt you. Compared to loans, they also have much higher interest rates.
Small business credit cards are great for people who want short-term financing and have smaller expenses.
Business Line of Credit
Similar to credit cards, a business line of credit will give you a set amount of money that you are approved to use. You will not acquire interest until you use money, and you can use money from this line of credit over and over again.
Business lines of credit offer higher credit limits and interest rates that are comparable to loans. They also operate similarly to loans when it comes to repayment. However, if you miss a payment or spend over the limit, you could be looking at a much higher rate since terms are variable.
This funding option is right for businesses that have ongoing operating expenses, shortages in cash, and working capital needs.
With term loans, you are approved for a set amount of money. You will then pay it back over a set amount of time. This option is the most straightforward and makes it easier to budget what your monthly payment will be.
Lenders will offer fast and easily guided approval processes making it a straightforward option. You’ll need to watch out for any additional fees that come with individual loans because they can add up.
These are best for businesses that are looking to grow with large specific purchases.
Small Business Administration Loans (SBA)
These loans are specifically designed for small businesses. They often offer flexible repayment options and lower interest rates. These lenders are usually backed by the Small Business Administration.
Although this is a wonderful small business financing option, the process can be a long one. It could take weeks to months to be approved. You’ll also need a great business and excellent personal credit.
This is for businesses that need a long-term option. A small business loan can be very beneficial while you’re just getting started or needing an extra push.
Merchant Cash Advance (MCA)
A merchant cash advance is when a lender agrees to give you a set amount of money. In return, they will receive a portion of your daily credit card sales. For this option, you won’t need the best credit score or a perfect business.
This option for small business funding works fast, and almost any business can be approved. A huge downside to this is the high-interest rate.
Small Business Grant
Would you ever turn down free money? Probably not. This option is how you get exactly that. However, you might find it hard to get approved or even find a small business grant. They are few and far between and usually have incredibly specific criteria.
They also might have certain things you can spend them on. The best place to look for these grants is with nonprofits and state or local governments. Be aware that you will be competing with lots of other entrepreneurs.
If your business serves a niche purpose, this could be something you want to look into.
Venture capital is when you sell a percentage of your business to a professional investor for cash. Remember selling a portion of your business also means selling a part of your control.
Venture capitalists will often only invest in businesses they believe can offer them a high return. This is one of the reasons that small businesses can’t easily tap into this funding option.
For this option to be viable, your business will really need to be something special, and an investor will need to believe in that passionately.
Angel investment is similar to venture capital. While venture capitalists are focused on business who they know will grow to be very large, angel investors are different. These investors focus on start-ups.
They will invest their own money and their time to see a business grow. Often angel investors are seen as mentors. You will have to promise them some control and a portion of your net earnings.
Family and Friends
If you’re having trouble in other areas of funding, you can always reach out to friends or family. They may be interested in providing you with a loan or even becoming an investor.
However, mixing personal relationships and business is not always an ideal situation. If your business fails, they may not get their money back, and you may have hurt your relationship.
If you have a great story or you think your business will get people excited, you can try crowdfunding. These may be donation or rewards-based. Rallying people behind your cause can be a difficult one. After all, people won’t be willing to just give their money away for no reason.
If you can do this successfully, you’ll have a predetermined group of people who are sure to support your business.
There are often competitions that you can enter to win prize money or funding. However, you may need to travel for these competitions, and that can be costly.
Your business will also need to be rock-solid with planning and creativity.
Dreams Come True with Small Business Funding
Starting your dream is not impossible. When you are scared and concerned about the beginning, remember that every successful business owner has been through the same process. Hopefully, these small business funding options have you feeling much better about getting out there and making things happen!
If you liked this post, be sure to check out our other content to help you grow your business, including this article on using social media for business on a budget!