7 Types of Financing Options for Small Businesses
If you’re thinking of starting a small business, you definitely aren’t alone. Over 99% of businesses in the US are small businesses.
While starting your own business might be intriguing, it is important that you understand the type of financing you’ll need for your business. While a dream is important, it’s also key that you have practical things in place when you get started.
One of the practical things you have to have in place when you get started is — money! Continue reading this article to learn more about business finance and how to get started with your new business.
What Type of Financing You Need & Beyond
Whether you’re looking for convenience store financing, financing for an antique shop or some other venture, the following information will help you understand what you need to do.
1. Credit Cards
While it’s easy to swipe your business credit card and get the cash you need for your next purchase — it comes at a high expense. Credit card interest rates tend to be some of the highest when you’re securing capital for your business.
There are some cards that offer introductory APR so you can purchase what you need and pay the money back before the card company starts to charge you interest.
Most of the time, the limit you get on your credit card is much lower than you can get from a bank loan.
2. Friend or Family Loans
Letting your friends and family in on the beginning of your business can be exciting but you need to determine whether you want to mix business and friendship/family.
Some people love doing business with friends and family while other people make it a hard rule not to.
Getting loans from friends and family can be one of the least expensive ways to get money but make sure you clarify the terms before you get the money so there are no misunderstandings.
3. Bootstrapping
Want a no-interest way to get the money you need to get started. Look in the mirror.
Many business owners bootstrap and fund their own business. Whether it’s through their savings or maybe taking on a second job, many successful business owners take care of their own funding needs in the beginning and many continue to do this throughout the course of their business.
4. Bank Loans
Securing a bank loan can take quite a bit of time. If you need cash right now it can be frustrating jumping through all of the hoops the bank requires you to jump through.
If you go to the bank, you’ll need to show a history of your ability to pay back debt. You’ll also need to show the bank a convincing business plan as well as a financial forecast.
You can check with the bank on the type of loans they offer but many new businesses opt for a Small Business Administration loan to get started.
5. Crowdfunding
Kickstarter anyone?
Kickstarter is just one of the crowdfunding websites that allow people to raise many for their business.
Most of the time these crowdfunding sites help businesses raise many to launch a specific product. You can opt to incentivize your donors by giving them merchandise for after the launch which gets more people on board to give you money.
This strategy is a great way to pre-sell your products and see how many people are actually interested in what you have to sell. However, keep in mind that no matter how great your product is, you still need to get it to the people who are buying it. The logistics in shipping a large quantity of products can be overwhelming so it’s a good idea to look into Kickstarter fulfillment services.
6. Venture Capital
Venture capitalists take a piece of your business in exchange for financing. Venture capital funds pool funds from many investors and allow many people to have a piece of the pie.
Venture capitalists are experts in the area of business where they invest which can be helpful to you as a business owner. You should know they will be involved in running the day-to-day of the business.
Before you start giving up parts of your business, make sure you know how much control you’re ready to give up for how much money.
Shark tank much?
7. Angel Investors
Angel investors are people that have plenty of money to invest in businesses they think are going to be successful.
These angel investors take equity in the company like the venture capitalists we spoke about above. They are experts in the area they invest in and expect to make a profit for the money they put into your business.
When you go to the angel investor for money, expect to defend your business plan because they are likely to try to poke holes in it and ask you why you chose to do certain things.
As long as your business plan is sold, you shouldn’t have anything to worry about. Seeing what areas in your business plan might need a little help is actually a good thing and can help you as you’re growing your business.
Choosing the Right Financing for You
The right kind of financing for your business depends on what you’re trying to achieve and how you like to do business. If you don’t want to give up control of your business then you might opt out of angel investors or venture capitalist funding and move toward bank loans or other options.
Are You Ready for More Business Topics?
Now that you know the type of financing you need for your new venture, why not learn more about growing your business? We have many articles that can help you with your business whether it’s new or old.
Browse our site, find your favorite section, drop a bookmark and come back soon for more great reads.
