Let's say your bank account lacks enough cash for payroll, a commercial real estate purchase, or anything among. If so, one of the numerous kinds of funding for small businesses can likely help you to get what you need. But which kind of financing is the best for you? Find 12 options – and explanations about which might work best for the small company – below.
12 types of funding for small businesses
Companies of all stripes often rely on the below kinds of funding for small businesses. Having said that, a few of these options will be better for the business than others. Below are brief summaries of these funding sources, the types of businesses they're best for, and just how you can make an application for each type of funding.
1. Equity financing
Equity financing is the sale of shares in your company to individuals who then become shareholders. You can privately sell shares of the business to friends or family, or you can sell these to the public as stocks.
Equity financing is a great fit for the business if you'd prefer not to undertake debt to obtain funding. It might be a mismatch if you are unwilling to quit a number of your treatments for your business – technically, all shareholders get a say. You must undergo an initial public offering (IPO) to market stocks towards the public, or make individual arrangements with family and friends.
2. SBA 7(a) loans
SBA 7(a) loans really are a respected class of government-backed loans. Smaller businesses commonly use them for debt financing options with low interest, long repayment terms, and large loan amounts. Combined, these 4 elements result in small, regular monthly payments and a sizable upfront lump sum payment of cash.
SBA 7(a) loans are a great fit for just about any small business that wants to make use of debt financing like a funding source. You have to use SBA 7(a) loan funds for working capital, commercial real estate purchases, or debt refinancing. If you have other funding needs, SBA 7(a) loans may well be a mismatch, though other SBA loans may fit the bill.
You can use for SBA 7(a) loans through SmartBiz – check now to see whether you pre-qualify*. If you do, the SmartBiz process is particularly simple and fast. And in contrast to many SBA 7(a) lenders, SmartBiz doesn't need you to present your own business plan.
3. Bank term loans
Small business owners who don't qualify for SBA 7(a) loans often turn to bank loans instead. That's because loans from banks are a little more accessible and largely resemble SBA 7(a) loans. In the end, traditional banks and financial institutions fund both types of loans, therefore it is no surprise why their repayment structures resemble each other. Having said that, bank loans normally have somewhat less favorable rates, repayment periods, and loans.
Like SBA 7(a) loans, bank term loans are a good option for anybody who applies for them and may undertake additional debt. Your allowed use cases may vary by lender. You can apply for bank term loans through SmartBiz(R) too.
4. Strategic business plan competitions
Business plan competitions are at once an unorthodox funding source along with a logical choice. That is because trying to get small business loans often needs a business plan as part of your application. And creating a business plan could be a lengthy process, so why wouldn't you use your plan toward as many funding routes as you possibly can? If your strategic business plan stands out in the pack, the folks running the competition may help fund your company.
Funding through strategic business plan competitions is a great option for any organization which has a business plan. A quick search on the internet is generally all it takes to locate relevant competitions.
5. Business credit cards
A business charge card can be a feasible funding source if you can guarantee that you'll repay balance in full by its due date. If so, you've free reign to spend anywhere up to your borrowing limit on anything you need. But leaning in your credit card too much can be a trap. If you can't repay your balance on time, our prime APR can result in excessively large fees.
Business charge cards are great for any small business operator with firm control over their bookkeeping and accounting. If this describes you, then you're probably in good shape to not miss payments and trigger exorbitant fees. You can generally easily obtain a business credit card with any major charge card company, and you will typically be approved (or declined) quickly. Your card should arrive in the mail not long afterward.
6. Business lines of credit
A business credit line is actually a credit card with a larger maximum borrowing limit. You don't have to use the entire line, and you will never pay fees on anything you do not use. You can depend on business credit lines to finance large purchases that you want to pay off on a \”medium-term\” timeline.
Business lines of credit are generally a good fit for just about any business discussion it can repay the money it will use for its purchases. You are able to apply for them through traditional banks or online alternative lenders.
7. Business incubators
Business incubators fund you indirectly – as in, they provide you with resources, not money. You have access to them during your company's startup phase, and you'll get use of tools, workspaces, and expertise that you'd otherwise pay. This newer funding model is most typical within the multimedia, industrial technology, and biotechnology sectors.
Business incubators make the perfect funding option if you want to save money during your startup phase but can't remove loans. Also they are a good option if you're looking for venture capital or angel investor funding down the road. Most business incubators will hook you up with one of these funding sources and teach you how to pitch them. Searching the internet for business incubators should bring up several websites from which you can easily apply.
8. Venture capital
Venture capitalists typically fund tech startups using the potential for massive growth. If your business checks this box, then venture capitalist funding could be a game-changer. Obtaining it means giving the investor a particular number of business shares in return for cash. The risk is when your business fails, you will still need to entirely repay the investor. You can find vc's through internet searches and get in touch with schedule pitch meetings.
9. Angel investors
Where venture capitalists are usually firms, private investors are usually wealthy individuals who are experts within their field. Otherwise, they operate mostly the same: Both entities will fund your online business in return for a seat while dining. While private investors typically invest less cash than vc's, they're also unlikely to ask for their cash back if your business fails.
Angel investors are a great fit for companies that require a large amount of money and reliable expertise. You can find them on several websites that connect small businesses with private investors who may potentially fund them.
10. Short-term capital loans
Short-term working capital loans come in two main varieties. They're available with the SBA CAPLines loan program, which offers installment and revolving loans as high as $5 million. However, the SBA only offers these financing options to some narrow selection of small businesses. You may easier be eligible for a other short-term capital loans such as business lines of credit or invoice financing and factoring.
11. Invoice financing
Invoice financing companies pays you roughly 80 % from the worth of your business's current outstanding invoices. When you collect these invoices out of your clients, you'll pay One to three percent of your invoice total for every month of the loan.
Invoice financing is a great choice if you need cash sooner than later from a source you can probably repay. You can apply for invoice financing through SmartBiz's custom financing solutions, but remember that delayed client payments on invoices can increase your fees.
12. Invoice factoring
Invoice factoring is almost entirely exactly the same thing as invoice factoring, with two key differences: The first and most important difference, a bill factoring company will take within the collection process for you. The second, invoice factoring companies offer you roughly 85 to 90 percent of the invoices upfront.
Invoice factoring is reliable for the same reason as invoice financing. It's a income boost according to money you can probably say someone pays you later on. However, its fees are greater than with invoice financing – Two to four.5 percent. That fee range can instruct even more financial difficulties for you if your clients pay slowly or not at all. You'll find factoring invoices companies through internet searches and apply on their websites.
Apply for small business funding with SmartBiz
Among the above kinds of funding for smaller businesses, SBA 7(a) loans are usually the best choice. Bank term loans really are a solid second choice, and invoice financing, business charge cards, and business lines of credit are wonderful options too. It's easiest to apply for them all with SmartBiz by your side. Find out if you pre-qualify*, and reach out to us when you need assistance – we're here to obtain the funding you'll need.