Small Business Financing: What Are My Options?
One of the biggest decisions that small business owners face is determining how they will finance their business. As only a very small percentage of business owners can afford to finance their business ventures outright, it is necessary to explore all of the options that are available. While a traditional loan may prove to be beneficial for some small business owners, other methods of financing may spare you the cost of high interest rates.
Traditional Bank Loan
Many find that they feel most comfortable with securing a loan through a traditional bank. If you are a member of a credit union or have a long-standing relationship with your local bank, this may be the case for you as well. Others, however, find that the interest rates are much higher through banks than through other avenues. This, of course, will largely be dependent upon your credit score.
The Small Business Administration (SBA) is an organization that is committed to providing assistance to small business owners. Aside from providing valuable resources and information, the SBA also provides low-interest loans to small business owners. Many find that these interest rates are lower than that of a local or national bank, while the terms are also generally more flexible.
The word “fundraising” likely conjures up notions of elementary school bake sales for most; however, this concept is not limited to school children. Hosting a fundraiser can be an excellent way to raise money for your business while also spreading the word about your mission. This is especially popular when events are held on a local level, as many communities relish the opportunity to support a local business.
Securing an investor or two is a great way to get your business going. In some cases, these investors will own a portion of the company in exchange for the financial backing. In other situations, investors act as “angel investors” and hold no stake in the company but generally require a 20 percent return on their investment. To secure either type of investor, it is crucial to map out your business plan and develop a strong pitch.
Similar to fundraising and investors, crowdfunding relies on financial assistance from others in order to get your business off of the ground. Today, there are numerous crowdfunding platforms online where people from around the world can easily locate your business. With this avenue, several people will usually donate small amounts, which add up over time. To be most effective, incentives are usually offered based on the quantity of the donation. For instance, a small donation may receive a bumper sticker, while a large one may receive a free product after the business has launched.
Bootstrapping can take on many different meanings when it comes to small business financing. It may mean that you finance your business ventures with your own personal finances. In this case, you do not have to worry about interest rates, keeping investors appeased or paying off other loans. This method, however, does come with more risk to your personal finances. Other means of bootstrapping may involve renting equipment instead of buying it and trading products or services with other businesses.
The type of financing that is best for your small business will likely depend on a variety of factors. These factors may include the amount of money that you require, along with your personal finances and credit score. In either case, there are a number of ways to raise money for your small business. Before committing to any of these options, be sure to read the fine print of the offer and consider what the final cost will be.