Small business loans aren’t your only option for funding a small business. Whether you need startup capital, need to fund an expansion, or need cash for operating expenses, there are plenty of options for entrepreneurs and aspiring entrepreneurs to get the cash they need.
If you’re looking to cover startup costs, a business line of credit or credit card may be enough. Crowdfunding can also be a good way for many entrepreneurs to generate startup costs. There are many options for taking out small business loans from traditional and non-traditional lenders. You could attempt to attract investment funds. And, of course, there’s the tried and true strategy of funding your business with personal savings and loans from family and friends. Let’s take a closer look at each source of funding.
1. Business Lines of Credit
When you’re first starting a business, it can be hard to get traditional (and even non-traditional) business loans because these typically require that you show some proof that the business is profitable. You can’t do that if your business isn’t profitable yet. So, if you want to borrow funds to start your business, a business line of credit or a business credit card may be your only option.
You can obtain a business line of credit or credit card using your own personal credit history, so if you have good credit, this funding option should be open to you. Either option allows you to borrow exactly as much as you need for startup costs, up to a credit limit. Assuming you start your business off small with as few costs as possible, a business line of credit or credit card should offer enough funding to put together a prototype, manufacture your first round of products, or put together the funding you need to secure your first round of clients.
2. Small Business Loans
A small business loan might be the right option for you if you need capital to buy equipment, rent facilities, expand your business, or seize a new opportunity. In order to get a traditional small business loan from a bank, you’ll need to have been in business for at least two years and show financial statements proving that your business is profitable. It can take a few weeks for a traditional business loan application to be processed and the money to be released.
However, there are lots of non-traditional small business loans available these days from online lenders. One of these loans could be a good option for you if you need capital fast to cover operating expenses or payroll. You can apply for non-traditional business loans online, and while you’ll give much of the same information that you’d give when applying for a traditional loan, most online lenders have less strict requirements than traditional lenders. That means your application can be processed faster – within a few days – and the money can be released to you right away. Some lenders will even process your application and release funds the same day you apply.
Crowdfunding can be a great way to raise money to start a business. Most people used rewards-based crowdfunding platforms, like Kickstarter. These platforms allow you to offer people small prizes or rewards in return for donating to help get your business idea off the ground. Usually, these prizes include free products, event tickets, or early access to new merchandise. Crowdfunding a business idea can be hard to pull off though – you have to have a real crowd-pleaser of an idea and the web savvy to get online audiences hyped up for it.
If you want to scale up your business, attracting investors might be the way to go, especially if you’re aiming to grow your small business into a large corporation. Use platforms like Wefund or Mainvest to attract investors to your business. However, be aware that investors will probably want a share of equity in your business, and they’ll want to see a lot of growth. If you want to keep your company small, investment may not be the right choice.
5. Personal Savings and Loans from Family or Friends
If you’re looking to start your small business without going into debt, you may want to cover startup costs out of your personal savings. You might need to save up for a long time, but at least you’ll be starting your business without the burden of a debt to pay off in the early days, when money tends to be tight. If you choose to borrow money from family and friends, make sure you’re honest with them about your business idea, your finances, and your projected revenue. Set a schedule for repaying your friend’s or relative’s money, and put everything in writing so everyone knows where they stand and you can avoid arguments later.
When it comes to funding a small business, you have options. Get the funding you need from the source that works best for you, so you can focus on what you do best – running your business.