Small Business Funding Options
Small businesses in today’s world exist in a new economic landscape that requires creativity and thinking out-of-the-box when handling financing matters. When dealing with financing, you have to make use of several approaches to get finances for growing the business or for starting a business. There are several options based on where you are in your business, the amount you require, and the type of funding you want.
During the life of any business, the owner will be faced with the task of seeking funds to help the venture to grow or keep it going through a rough patch. There are two types of financing for small businesses. A company can raise funds through debt or equity. Here is a breakdown of the various sources of funding available to small ventures.
When a business owner chooses equity as a source of funding; he or she gets a note for the cash. The note indicates the terms of repayment including the interest and timing. The advantage of using debt is that the company remains under your ownership. However, you are obliged to pay the debt, and there are consequences of failing to meet your end of the deal. Here are financing options under debt.
Bank Loans is still an option for small business financing even if there are news about the difficulty of getting a bank loan for a small business. If your company has collateral and excellent credit, then this is an excellent financing option for you. You can get tips for securing a bank loan quickly if you meet the qualification set by the bank.
Small Business Administration (SBA) Loans
Most small businesses in the United States look for funding from SBA loans. The financing option would be the most appropriate option especially if your venture meets the criteria. You can search online for details on the SBA loan program in the United States.
Nonprofit Micro Loans
Many organizations offer micro loans as a means of financing for small businesses. Search for various microcredit organizations as well as the options they have. If you are a minority-owned venture operating in a developing country, these organizations could be a good route for you.
In this case, the business owner turns over an ownership stake to an investor in return for the investor’s cash. In this case, the owner is not obliged to repay the investor. However, the disadvantage of equity as a source of funding for small businesses is that you give a part of the ownership of the firm. That means the owner loses same control over the company. Here are examples of equity as a source of small business financing.
Here, the company funds itself. As the company grows, it throws off cash that makes it grow further. For instance, a company that distributes and installs VoIP technology can use the sales in the pipeline to expand according to its objectives. In such a case, the company does not require outside cash; it can bootstrap its business.
Some entrepreneurs fund their ventures themselves. They use personal debt like credit cards or mortgage and savings to start or grow their ventures. Alternatively, an entrepreneur can sell assets such as a boat or a second home to generate more cash for the venture.
Friends and Family
Friends and family can offer equity or debt funding. However, you need to be cautious when seeking to fund from this group or selling part of your venture to them. Unfortunately, the venture could fail, and the loss of capital can cause hurt feelings, which ends up running friendships and family relationships.
These are affluent people willing to invest in ventures. Angel investors are forming investment groups that aim at spreading risks and pooling research. You can search online for local angel investors or liaise with your chamber of commerce to know interested individuals who are willing to fund your business.
Cloud and Crowd Funding
Cloud funding entails pitching your ideas to investors through the internet. If it becomes successful, several investors contribute funds to the idea. However, beware of the underlying restrictions. Crowdfunding entails web-based projects where people with projects and ideas reach out to investors through certain platforms.
Small businesses have several financing options. All you need to do is get the most appropriate financing option. However, a small business requires a good business plan and much persistence to secure funding.
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