Each type of financing has its own terms and conditions. Understanding each option is important to making the best choice for your business. With debt, equity and creative financing solutions available, it’s vital to understand your choices. Funding Options For Your Small Business.
Bank Loans
Whether your business is just starting out or is in the midst of an expansion, it will likely need financing to get the job done. Many entrepreneurs who are new to the financing process have two preconceived notions about business loans: that only large banks offer them and that they are a costly option.
A traditional bank loan is one of the most common funding methods for small businesses. It can provide you with a lump sum of money, which you will repay over time, plus interest. There are also business lines of credit that work more like a business credit card, which you can draw from as needed for unexpected or ongoing expenses.
Depending on the type of loan you seek, you may need to provide extensive supporting documentation to qualify for it. This includes your personal and business credit history, financial statements, tax records, and more. The approval and funding process can take weeks, but you can find alternative lenders that can offer quicker options.
Crowdfunding
In this out-of-the-box funding option, everyday people invest in your business in exchange for a reward or a share of ownership. The key to success in this arena is telling an honest and compelling story that gives people a sense of your goals, why they should care about those goals, and what the community will gain from their support. You will also need to disclose detailed financial information and fulfill specific reporting requirements.
Some of the most popular crowdfunding platforms include peer-to-peer lending, where lenders match borrowers with businesses; rewards-based crowdfunding; and equity crowdfunding, where investors purchase shares in your company. Peer-to-peer lending and rewards-based crowdfunding are often easier to qualify for than traditional loans and require less of a commitment from the borrower. In contrast, equity crowdfunding requires a strong marketing strategy and a willingness to give up some control of your business. Also, you will typically need to pay a fee to the platform that hosts your campaign.
Online Lenders
Online lenders offer debt-based financing options that include business lines of credit, term loans and equipment loans. Insufficient working capital is a common reason for small businesses to fail. Researching the right funding method and executing it properly can increase your chances of success.
Angel Investors
Angel investors are private individuals who invest in small businesses in exchange for equity.
They also provide a guiding hand to the business.
It provides a much-needed cash boost to help you cover expenses while you wait for customers to settle their bills. However, this approach can be dangerous if you drain personal savings or overextend yourself. As such, you should avoid using this option unless you have plenty of experience and can manage the risks involved needs read more hear.
