If you have to create a major investment for the business, do not be afraid to explore financing options. It's wise to speak with a financial advisor so you have a clear look at how taking on debt can impact your taxes and funds flow.
There are multiple funding options available for entrepreneurs. Proceeds can be used to purchase new equipment, expand the locations of stores or warehouses, or inject money to your business to help your money flow. Make sure to seek advice from your lender to make sure the way you desire to use the loan is suitable.
Here are some of the main financing possibilities for business people.
1. Crowdfunding financing
Crowdfunding can be a good way of funding new projects, primarily through online forums and specific crowdfunding platforms, by raising money in the general public.
The crowdfunding option works well with consumer-facing businesses that possess a product or vision that everyday people could possibly get behind. You will get started on popular sites like Kickstarter(R), GoFundMe(R), and Indiegogo(R).
One of the main advantages of using crowdfunding to fund your new investment is that you access a bigger and more diverse number of investors. Equity crowdfunding is also a choice open to you. It enables public investors to consider a proportionate slice of the equity in your business to acquire their money.
But there are drawbacks, such as the fees associated with crowdfunding platforms and, on some sites, the inability to use pledged funds if you don't reach your funding goal.
2. Equipment financing
If you need to purchase equipment for the business, you will find the choice of getting a loan from a lender that's an expert in your industry. You can then make simple repayments and eventually own the equipment.
For example, if you run a machine shop business, you would need to make major investments for equipment like lathes, mills, and press brakes. Whereby, you could find a dealer that offers financing facilities.
Look for any true simple-interest loan with flexible financing structures.
Once you pay back the loan, you'll own the gear, which means you have another physical asset as part of your portfolio.
3. Bank loans
Whether you have to purchase machinery or make another kind of major investment for the business, you will find the choice of obtaining a loan from the bank. The key benefits of borrowing from the bank are, so long as you take care of the repayments, banks generally shouldn't set restrictions on which you can use the borrowed funds for, and you may often get favorable interest rates.
Also, if you already have an account with the bank, you can get sound lending assistance with your choices from a financial advisor.
However, there are disadvantages to getting a financial loan. The application process could be lengthy, eligibility criteria in many cases are strict, and secured personal loans carry risk. Start by contacting your personal bank to discuss your options. If that route isn't suitable, you could apply for a loan with another bank.
4. Angel investor financing
If your company is quite new, you could have an angel investor aboard. Private investors are high-net-worth private investors that provide entrepreneurs and smaller businesses with whether one-time investment or perhaps an ongoing injection of financial support, in return for ownership of equity in the company.
When an angel investor is part of your company, you need to approach him or her for funds to cover your major investment needs.
While investment from an angel investor could be a great way of securing funds for your immediate requirements, funding via private investors does come with risks, but it usually includes better terms in comparison to other lending options. Angel investors in many cases are family or friends, so if you wish to drop this funding route, begin by asking the folks you know when they could be thinking about supporting your business.
5. Investment capital financing
If you have to create a major purchase of your business but have not yet actually started earning revenue and profits, you might have a choice of venture capital financing. Investment capital investment money is pooled funds from investors who would like private equity stakes in small to medium-sized businesses that have strong potential for growth.
However, investment capital financing is proven to be high risk. The funding choice is usually best reserved for new business organisations that seek accelerated growth. Tech companies and businesses in emerging industries typically go down the venture capital financing avenue.
6. Peer-to-peer lending
Peer-to-peer financing works such as this: smaller-scale investors are matched with a small business that needs funds.
With peer-to-peer lending, you effectively eliminate the requirement for an intermediary. You can apply for peer-to-peer financing on various websites and acquire a loan from the pool of investors.
Repaying a peer-to-peer loan is comparable to repaying a financial loan. You'll agree to an interest fee upfront. If you should fail to make repayments, the typical debt rules will apply.
7. SBA loans
The most prominent assistance program the Sba (SBA) offers is really a guarantee on loans made through banks, credit unions, and other lenders they partner with. By securing some of an SBA loan when it comes to the borrower defaulting, lenders are given less risk so that they may offer an affordable loan.
SBA 7(a) loans from $30,000 – $350,000 from banks can be used for debt refinancing and dealing capital. Capital includes operational expenses, marketing, hiring, etc. SBA loans can be used to fund new equipment purchases as well. SBA 7(a) loans can also be used for refinancing existing business debt unsecured by property (such as cash advances, business loans, and equipment leases). With reduced rates and long terms (10 years), an SBA loan can be a great solution.
Summing up
It's important that you carefully consider each of the above funding options to determine which is the most suitable for your needs. Begin by thinking about your specific requirements and the pros and cons of each investment option.
Then, create a list from the options, together with your most preferred financing option at the top and your least preferred option at the end. After that you can try each option in order. Hopefully, the first option can supply you with the cash you need to fund your major investment.
To recap, listed here are the main financing options available for you:
- Crowdfunding
- Equipment financing
- Bank loan
- Angel investor financing
- Venture capital investment
- Peer-to-peer lending
- SBA loans
Don't be afraid to explore each option at length. Get solutions to any questions you have before you decide in your course of action, and try to browse the terms and conditions before signing on the dotted line.
As long as you spend some time determining which financing choice is the best option for your specific circumstances, you'll easier be able to find the best financing route for you and expand your business further.
