Top 5 Financing Options For Small Businesses

It’s really difficult to start or maintain a small business if you don’t have working capital. Before starting a business, it’s important to know your financing options. Once you have chosen the best one for you, you’ll be able to create a more effective business plan for better outcomes. 

 

In this post, you’ll learn the different financial options available for small businesses.

 

  1. Unsecured Lines Of Business Credit

 

Small business owners don’t always have all the money for steady operations. Unsecured business credit is a good funding consideration for small business owners, which is a “hidden gem” that comes with a plethora of business benefits.

 

At some point, a business may experience cash flow problems. Unsecured business credit aims to help business owners meet short-term cash needs, such as buying much-needed supplies, inventory, and covering the important operating expenses. Check this comprehensive review of an unsecured business credit funding source to learn more.

 

Here are the benefits of unsecured business credit:

 

  • No Collateral Needed: This type of funding source for small business don’t require security, assets, or collateral, unlike secure loans. 
  • Favorable Interest Rates: Unsecured business lines make business loans suitable for low-risk borrowers because of desirable interest rates. Most unsecured business lines come with lower interest rates as compared to traditional business loans.
  • No Monthly Payment: Not until your unsecured loan is used, you’re not obliged to make monthly payments. It’s totally different from other loan types wherein a borrower should place payment immediately after a 30-day grace period regardless if the loan has been used or not. That’s why unsecured business lines are more attractive to many small business owners.
  • Continuous Capital Access: Unsecured business lines allow you to access the capital as long as your business operates. Unsecured business lines make a perfect solution because small businesses constantly need working capital to operate smoothly.

 

  1. Commercial Loans

 

Small business owners can apply for a commercial loan from credit unions and banks in which the lender provides cash and the borrower pays with interest over time. Before applying for a commercial loan, you need to prepare to pledge collateral, like a real estate property, and a reliable and good history of business revenue. It means that you should pay the loan from your assets if your business cannot make loan payments.

 

  1. Equity Financing

 

With equity financing, you have to give up your share of business ownership in exchange for capital so that you have money to use in operating your business. If you have a great, new business idea without sufficient credit history or money to invest in getting a commercial loan, you can create a business partnership with an individual who has money to invest (investor). 

 

  1. Personal Investment

 

There are so many ways you can save up or make money so you can come up with the amount you’ll need for your startup business. You just need creativity, patience, hard work, and financial confidence to do so. You can use your savings or assets to fund your small business. However, it involves the most risk because you’re putting your personal financial wellbeing at stake. That’s why it’s considered the least desirable funding option for small business owners. 

 

You may consider taking a personal loan. It is easier to get approved if you have a good credit history as compared to when you apply for a business loan. If you haven’t established a good business credit history just yet, a personal loan comes handy.

 

  1. Government Programs

 

It’s possible to fund your small business by taking advantage of government programs. Each business funding government program has a set of criteria. For small businesses, the largest federal funding source is the Small Business Administration or SBA, which directly issues loans. A large portion of SBA loans are administered by SBA. That’s why SBA loans are considered commercial loans guaranteed by the federal government.

 

If you’re not qualified for a private loan program, you might consider getting a government program loan. Also, local and state programs provide small business funding options, including both grants and loans.  

 

Conclusion

 

Small business owners can take advantage of the best financing option applicable to their needs. Unsecured business credit lines are highly recommended for those who need steady working capital for immediate business needs and find low-interest rates and no-collateral loans favorable. 

 

Also, commercial loans, equity financing, and government programs are other options, which are traditional ways to get a business loan. On the other hand, personal investment is your last resort, as this would entail using your own money to finance your business; however, such an option has considerable risks involved.

 

Adam Hansen