Three options for financing your small business
Most entrepreneurs find a time in their business when they need to access financing. It may be in the early stages of their business, when start-up costs for offices, equipment and employees must be covered. Or it may be later on, when they have to relocate, purchase more inventory or equipment, or market their business more aggressively.
Financing a business can be scary, but there are many options for entrepreneurs to consider. They each have different advantages and disadvantages, but chances are there’s a financing option that will work well.
Here are three options for financing your small business.
1. Small business loans
Business owners typically only think of small business loans that are offered by banks, and financial institutions do offer such loans. Banks may be more conservative with their small business loan offers, however. It can be difficult to secure a bank loan if you have no credit history or collateral to back the loan.
There are other ways to obtain small business loans. Many governments offer small business financing programs, which can be used for a variety of entrepreneurial expenses. Look into your government’s financing programs to determine if you can obtain money for the expenses you face. Look closely though, not all expenses are necessarily included.
Less traditional small business loan providers can also be found. Thanks to the Internet, there are even ways to obtain small business loans online, through lending companies. It may be easier to obtain a small business loan through such companies. However, they may come with an important disadvantage: high interest rates.
Before you agree to any loan, no matter who offers it, make sure you understand all the terms and conditions.
2. Angel investors
Angel investors are people who invest their own money into start-up businesses with the expectation that they receive a return if the business succeeds. They are often already successful at investing and could inject experience and wisdom into your business. Also, they won’t require loan repayments, which can help your cash flow.
They may want to take part ownership of your company. Angel investors tend to invest in businesses where they can receive a high return. This means that you should be thinking about your business becoming a massive venture in the future, not staying small. You also need to be okay with accepting input about your business from someone else.
If you have the money saved or the motivation to work extra hard to make the money you need, and the above options don’t appeal to you, you can always finance your business yourself. The advantage is that you won’t be paying interest, you won’t lose ownership of your business and you won’t owe any money. You also won’t feel that you have to give anyone else a say in how you run your company.
The disadvantage is that you may not be able to grow as quickly as you want. You’ll also be dipping into your savings, and may wind up working very long hours to make up the money.
Most small business require an influx of cash in the early stages so the owner can cover the start up costs and pay bills until regular revenue rolls in. The type of funding you access can depend heavily on your financial situation, your business goals, and your willingness to give up a portion of your company’s ownership.