Most small businesses will always be searching for ways to improve their business. However, any and all improvements you are making require additional capital. That's true whether your improvements entail buying commercial property, hiring more employees, upgrading your equipment, or expanding in other ways. Many financing choices are available for these needs, so below, we've provided an extensive guide to how you can finance small company growth.
12 Ways to Finance Small company Growth
Some business people might seek term loans from a bank, whereas others might favor the backing of an angel investor. Somewhere within the below list of a dozen ways to obtain small company finances, you'll find the best choice for the situation.
1. Remove Bank Loans
Traditional bank loans typically include desirable terms for borrowers. They often offer long-term financing with generous repayment periods and a low interest rate. Additionally, banks won't interfere with your everyday business operations, so loans from banks will help you finance your company with minimal restrictions in your day-to-day.
However, most banks set high eligibility standards for their loans. That is because banks are notoriously risk-averse in pretty much all their affairs, including lending. Additionally, bank loan applications could be considerably longer and more tedious than other loans.
The solution is often to utilize a company that may connect you with loans from banks – or, even better, SBA loans. These companies often accelerate the procedure and introduce an individual element that's missing otherwise. SmartBiz is a superb example: It offers you with hands-on guidance and helps you easily compare loans. Whether you're seeking loans from banks or their borrower-friendlier SBA alternatives, SmartBiz is there along with you at every step.
2. \”Bootstrap\” Your Business
\”Bootstrapping\” simply describes when you use your own money – or even the money your business earns – to fund your company. Since bootstrapping almost wholly removes external funding in the equation, it's not necessary to spend your time searching for investors or loans. Additionally, bootstrapping enables you to keep complete control over how you increase your business since you're not beholden to other people. However, bootstrapping will rarely provide considerable amounts of cash that you'll need for several large purchases.
3. SBA Loans
SBA loans are government-backed funding options that cater to the financial needs of small business owners. While the U.S. Small Business Association – the \”SBA\” within the title – oversees them, the company doesn't directly hand out loans to borrowers. Instead, the SBA empowers banks to extend more favorable loans and terms to small businesses. Consequently, a lot more borrowers can access small business loans with favorable rates and lengthy repayment periods.
4. Receives a commission from Friends and Family
As suggested by its name, family and friends financing happens when the folks in your life assist you to finance a company venture. Funding your company through family and friends can offer similar benefits to bootstrapping – for example, the possible lack of investor involvement in business decisions. However, that condition relies upon your relationship with your loved one. Maybe your uncle uses a say in the way you run things in return for the money you'll need for your second location.
Friends and family funding has a few pronounced disadvantages. For starters, it's often tricky going into business having a family member as their financial health depends on your success. Additionally, the people in your life might not have enough money for your needs, whereas other funding routes can drastically increase your income.
5. Open a Business Line of Credit
A business line of credit is like a charge card but on the larger – and, often, more affordable – scale. The lending company sets a borrowing limit that you could borrow against for just about any possible business-related expense, however, you don't have to make use of the whole amount. You won't pay any fees or interest on any funds you do not use, so business credit lines can be more affordable than other funding routes.
Many small business owners use business lines of credit to stimulate income during slower quarters. At these times, credit lines might help employers pay employees and buy equipment without going in the red. Additionally, reliably paying off credit lines can build a reliable credit history that helps you qualify for financing in the future. But when you miss a payment, you'll pay high fees, and your interest rate will be high even if you pay promptly.
6. Use Angel Investors
Angel investors are individuals who invest considerable amounts of cash into small businesses (usually startups) to assist them to grow. In doing so, they earn equity inside your company. Which means they earn a stake inside your company, giving them some say over your operations.
Additionally, generally, angel investors won't demand their money back in case your business fails. However, if you would like full control over how your business runs, an angel investor may not be suitable for your funding.
7. Crowdfund Your Company
Crowdfunding is really a challenging but potentially rewarding way to get the cash necessary to increase your business. It requires financing your company with direct donations in the public, typically in return for a reward or some type of perk. While advertising your products on a crowdfunding platform doesn't guarantee an effective campaign, you'll automatically build a subscriber base should you choose attract backers.
8. Get a Business Credit Card
Business credit cards function similarly to lines of credit, though in some instances, credit lines become inaccessible, and that is not true of credit cards. While you can use business charge cards for almost anything, their credit limits are usually less than credit lines. However, they frequently offer interest-free introductory periods and valuable reward programs.
9. Obtain Funding from a Venture Capitalist
Venture capitalists are individuals or companies that invest a large amount of money into smaller businesses to obtain more significant returns when the business succeeds. While the extra capital can help you increase your business, the investor will almost always insist on obtaining a controlling stake in your business. If you are willing to lose some control over your company, likely to established process for getting investment capital:
- Find an investor. Research reputable venture capitalist firms to find interested, suitable backers.
- Share your business plan. Present your business intend to the potential investor to allow them to determine if funding you may be worth the risk.
- Go through due diligence review. The investor will continue to examine your organization all the way through, including your fiscal reports just like your balance sheets and income statements.
- Work out terms. When the potential backer is content their vision, you can work out the terms and conditions of their investment.
10. Seek Equipment Financing
Equipment financing is a loan plan offered especially for equipment expenses. Typically, equipment loans inherently include collateral: Anything you buy using the lender's funds becomes collateral if you cannot repay the borrowed funds. That means no setting up your current assets for seizure, making the loan relatively low-risk.
11. Pursue Equity Financing
Equity financing may be the sale of shares inside your business to an investor in return for usable capital. It provides a fast influx of money with no debt, as well as your funds can immediately go directly to growing your company. However, whenever someone else buys shares inside your company, they acquire some control over your operations. That can take you out of the driver's seat for an extent, that isn't ideal if you wish to be the guiding light for the business.
12. Merchant cash advances
If your business accepts credit cards, you might be able to get yourself a merchant cash loan using your credit card processor. To settle this small company loan, you'll send a small amount of your daily credit card income to the lender. This method is usually automatic, making these financing options easy to repay. However, their rates of interest is often as high as 200%, so you could wind up repaying twice what you initially borrowed.
Final thoughts
There are lots of financing options available for small business owners, and each you have its unique advantages and disadvantages. Choosing the right funding opportunity for your business is not only about picking the main one using the highest or quickest payout. Instead, it's about selecting the loan plan that helps your company thrive for as long as possible.
