Business Finance: How to Fund Your Small Business

2015-04-21

Jeffrey Bumbales

Small business owners sometimes feel as if they’ve “fallen between the cracks” when it comes to getting the necessary attention and support for proper funding — especially if that funding requires high credit scores, millions in demonstrable revenue, or a lengthy track record of profitability/entrepreneurial savvy. That said, you have more options than you might realize for getting the capital or credit you need to boost your business. Here’s a breakdown of several different business finance strategies, both traditional and non-traditional, that merit consideration.

 

Traditional Business Finance Methods

SBA loans – Small business Administration (SBA) loans are often the first resource small business owners think of when examining their business loan options. These loans have one definite advantage in their favor — they’re backed by the government, which frees the participating lending institution to extend credit to small businesses that might not ordinarily qualify. SBA loans typically come with 10-year to 20-year terms. But that money must be used for relatively specific applications, and Business News Daily notes that approval may take 60 to 90 days, making it a non-starter if you need the money fast.

Conventional bank loans – The government isn’t involved in this type of loan, so the lender can afford to offer you a certain amount of flexibility in how the funds are applied. But that same lack of guarantee for the lender also results in more stringent application standards, including detailed business and personal financial data and an excellent credit score. Approval time is not much faster for these loans than for SBA loans, and you may have to repay the entire amount in 5 years or less.

Partnerships and investors – If you don’t have a sterling financial or entrepreneurial history, but you know you have a potential money-maker, then you may be able to attract partners and/or investors. These individuals or entities provide much-needed funding in exchange for a share of the profits or partial ownership of the business. Your satisfaction with this arrangement will depend on how readily you welcome others’ input in the direction of the enterprise.

Credit cards and lines of credit – This tried-and-true method of financing has problems, but at least it’s available to a wide range of small business owners. If you only need short-term funding and you’re confident you can pay the debt quickly, then this method can get you out of a hole with minimal risk. Unfortunately, many business owners continue to pile on additional debt faster than they can pay it down, forcing them to pay high interest rates and threatening their ability to qualify for loans.

 

Alternative Business Finance Methods

Peer-to-peer lending – Not every kind of business loan has to issue from a bank or credit union. Peer-to-peer lending has exploded in recent years as a popular alternative for businesses in need of smaller amounts than a large institution would typically bother with. Lending Club, Prosper, and other Web-based providers connect applicants with a pool of micro-lenders, with applications processed and funding provided with two weeks’ time or less. The Huffington Post adds that this method can also be used to help pay down high-interest debt. But without a decent credit score, your peer-to-peer rate might not be lower than the rate you’re already struggling with.

Merchant cash advancesMerchant cash advances aren’t loans at all; they’re agreements to sign over a certain percentage of future credit card revenues. The beauty of this option is the fact that you don’t have to worry about interest or monthly payments. The agreed-upon percentage is simply skimmed off the profits you receive from the purchases your customers make via credit card. That means the amount automatically scales up or down according to what you’re bringing in. Better yet, since there’s no underwriting to deal with, you can get approved for a merchant cash advance in just 24 to 48 hours.

Crowdfunding – Forbes describes crowdfunding as yet another alternative to lending that has gained considerable ground in recent years through online platforms such as Kickstarter, RocketHub and others. In this model, you present your business need (such as funding for initial production of a new product) in the most compelling manner possible. Interested parties then submit donations, for which they may receive a complementary product or some other thank-you gift. But this strategy depends on a strong promotional effort — and if your Kickstarter campaign fails to meet its financial goal, you won’t get any money from it at all.

As you can see, there are many valid methods for funding your small business. Which one you choose depends on how soon you need the money, whether you’re willing to bring other people into the business, and how far your business and credit history will take you through the traditional lending channels. If you’d prefer a merchant cash advance to other alternatives, apply at Credibly now!