Obtaining financing for your business can be a complicated process. So it’s important to know what options are out there and which ones are best suited for your business’ needs.
While every type of financing has its pros and cons, there are a handful of options that stand out for their benefits to both new and seasoned business owners.
1. Business credit cards
Whether you’re just starting out or your business is well established, getting a business credit card is a lot easier than many other small business financing options. That’s because approval is primarily based on your personal credit score rather than your business’ credit history.
This means that you don’t need to be in business or have any other business credit accounts open to get approved. That said, it can be tough to get approved if your personal credit isn’t in great shape.
Many business credit cards come with extra benefits that can make it a rewarding experience to use them regularly.
For example, some offer an introductory 0% APR promotion that can save you money as you finance large inventory, supply, or equipment purchases. Others offer rewards on every purchase you make, which you can use to put cash back into your business or to book travel.
If you’re trying to get a great idea off the ground, an effective way to raise money is through crowdfunding. Sites like Kickstarter and Indiegogo are full of small business owners looking to get funding. In return, they typically offer their funders early access to their product or service.
Crowdfunding is an excellent option for new business owners because you don’t have to worry about getting approved for a loan. And while you’re welcoming other people to invest in your business, you don’t have to give up equity in your company to get it.
The only drawback to crowdfunding is that it takes a lot of creativity and a solid product or service to get noticed. If you’re not sure that’s in your wheelhouse, take a look at some of the fundraisers on the sites to see if you can get some inspiration.
3. Startup Contests
If you think your business has solid potential, consider entering into a startup contest. There are several of these contests throughout the world that provide equity-free investments to winners.
Arch Grants, for instance, is a startup competition based in St. Louis, Missouri, where winners receive a $50,000 equity-free grant. Also, Nav offers a $100,000 grant to small business owners to take their companies to the next level.
If you don’t live near one of the geographically-based programs, it may be tough to make it work. But if you can manage and you think your business idea is a game-changer, you could get some relatively easy money.
4. SBA Loans
If your business is well established, getting a small business loan can still be difficult. But if you can manage to apply for an SBA loan, you can receive benefits like lower interest rates, longer repayment terms, and a low down payment.
That’s because these loans are insured by the U.S. Small Business Administration, making lenders more willing to offer better terms than they do on other business loans.
Keep in mind, though, that SBA loans typically require more paperwork and a longer wait time. But if you’re not in a rush to get funding, an SBA loan is often worth the extra effort and time.
If you can afford it, the best way to finance your business could be through your own income and savings. Bootstrapping a startup certainly comes with some challenges, such as ensuring that your own well doesn’t run dry.
But if things work out, you’ll have the satisfaction of knowing that you did it without outside help. At the same time, you still have the option to use other financing methods if bootstrapping is no longer working for you.
6. Angel investors
Bringing in an outside investor early on in your business may require you to give up some equity in your business. But what makes an angel investor an appealing option is what you get in return.
That is to say, you’re not just getting a monetary investment. You’ll also have access to their experience to help you make the right decisions early on. They may even be willing to share some of their contacts with you. After all, it’s their investment, and they want it to work just like you do.
Another benefit of having an angel investor is that you don’t have to worry about loan payments affecting your cash flow.
7. Online business lenders
Getting a small business loan through a traditional bank isn’t always easy, even if your business is well established. In recent years, though, several online business lenders have emerged to make the process of getting a loan easier and quicker.
While these online lenders typically charge higher interest rates than bank loans, they’re still reasonable. You’ll also get the perks of faster funding times and less paperwork.
How should you fund your business
When it comes to getting capital for your small business, there are several options worth considering. To avoid getting overwhelmed, it’s important to consider each option and how it can impact your business.
It’s also important to consider cost, both in terms of interest and loss of equity. In the end, you may end up using just one form of financing, or you may combine more than one to achieve your goals.
The most important thing is that you take the time to understand your business’ needs and to find the financing option that is best suited to serve them.
This article was originally written on November 2, 2018 and updated on October 20, 2020.