4 Sources of Small Business Financing
Small businesses often don’t have the credit history they need to be able to open their operations, fund expansion or even fund inventory to meet contract demands. The stress to find small business financing can keep business owners up all night.
But, there are financing options available when you know where to look.
1. Microloans designed for Small Businesses
The Small Business Administration offers microloans that are guaranteed to offer competitive terms and fees. What the SBA does is connect small businesses with lenders that are partners with the SBA. And, when you opt to choose a microloan, some will offer:
- Unique benefits, such as flexible overhead requirements
- Low down payments
- No collateral
- Continued support for business success
Loan amounts range from $500 to $50,000 with moderate interest rates of 8% to 13%.
2. Personal Loans
A lot of small businesses need to take out a personal loan until they establish a positive credit history. These loans are becoming competitive with online loans being the preferred choice among younger business owners.
The issue with a personal loan is that the owner of the business will be personally liable for the debt.
If the business fails, the owner will need to repay the debt. The benefits of a personal loan are:
- No hidden fees
- No complex approvals
When taking out personal loans, you’ll often have lower interest rates and better repayment terms. These are advantageous for some small businesses, but these benefits always come with the concern that the loan will go into default.
If something unexpected occurs, being personally responsible for repayment of the loan is not in the business owner’s benefit.
3. Outside Funding Options
A lot of businesses are started without loans or financing from traditional lenders. Amazon received funding from Jeff Bezo’s parents, and that investment may be worth up to $30 billion today.
Outside funding often comes from:
It’s important to warn all of your friends and family that there’s a high risk that the business will fail. Personal savings are a great option for most business owners, and it’s this savings that may also be used as a means of getting a traditional loan.
Personal savings, while a major personal risk, are often the best option because if the business fails, the only one that you have to answer to is yourself.
4. Crowdfunding Platforms
Crowdfunding is a major source of lending for small businesses, and these campaigns are also great for marketing unique businesses. You have a lot of crowdfunding options at your disposal:
You’ll need to come up with an enticing copy for your campaign page, and there are a lot of individuals that may be interested in providing you with micro funding options. Small investments may include free products or exclusive options for the investor.
And when a campaign is a major success, there’s often major publications picking up the story and helping further promote the business.
This free publicity may be enough to help lure in other investors or lenders that want to invest in your business’ success.