Small business financing can be found through many different avenues.
One major factor that will ultimately determine your venture’s success is financing. If your fledgling business is in desperate need of capital, take a look at these traditional and not-so traditional financing avenues to offer your enterprise a much-needed financial boost.
Alternative Financing Solutions:
- Community Development Finance Institutions: They provide capital to both small business and microbusiness owners with reasonable terms. They don’t need much collateral like traditional banks.
- Venture Capitalists: This group assumes partial ownership of the company in exchange for capital. Percentages of ownership are up for negotiation and based on the company’s “valuation”.
- Partner Financing: This is where another “player” within your industry finances the growth in exchange to specific access to your product, distribution rights, staff, “ultimate sale”, or a composition of these items.
- Angel Investors: An angel investor is a person who is drawn to investing in a startup or “early-stage business”. They provide, not only funds, but offer guidance and assistance on your journey.
- Factoring/Invoice Advances: Here, the service provider provides you with the funds on current, “billed out” invoices. You will repay when the customer pays back the bill.
- Crowdfunding: This platform enables businesses to gather small investments from various investors and not rely on a single source of investment.
- Grants: Those businesses that are dedicated to science or research can receive grants from the government. The U.S. Small Business Administration or (SBA) can offer grants via the Small Business Innovation Research as well as the Small Business Technology Transfer programs.
- Peer-To-Peer or Marketplace Lending: Another option for raising capital, it uses websites to connect borrowers with lenders. It is considered a “hybrid of crowdfunding and marketplace lending”.
- Convertible Debt: This is when a business borrows money from a certain investor or an investor group, with the agreement to transform that debt into equity for the future.
- Merchant Cash Advances: A financial provider offers a lump-sum financing but they “buy the rights” to a share of your credit and debit card sales. With every credit and debit card sale, the provider takes a cut of that sale until advance is paid back in full.
Traditional Financing Solutions:
- Traditional Bank Loan: This is a “lump sum, term loan”. No collateral is required and the time to pay back is fixed. The interest rate for the term loan is also fixed. Term is usually 7 years.
- Short Term Loan: Typically a lesser amount than the traditional bank loan, the time to pay back is usually 12 to 84 months. Interest rates can be either fixed or variable.
- Commercial Real Estate Loan: These loans have fixed or variable interest rates, with terms from 7 to 10 years. The loan amounts begin at $50,000.
- Line of Credit: These offer a great variety of options for financing. Interest rate is variable, may require assets for loan collateral. Without collateral, interest rates are higher. Lower loan amounts mean higher interest rates.
- SBA Loans: Through the U.S. Small Business Administration, the government guarantees payment of a considerable part of that business loan. The additional paperwork required ensures that the applicant receives a complete loan package.
- Online Loans: Reputable online business loan options include Wells Fargo, Capital One, and Chase Small Business. An online loan that combines debt can help improve the overall credit score of the business.
- Equipment Financing: Little or no down payment is required. The lender can allow the applicant to incorporate any cost of installation plus sales tax to the total loan amount. It can be framed as a term loan, line of credit, or a mixture of both.
Financing Solutions Are Available
During this time of great financial distress for businesses worldwide, it is comforting to know that they can turn to any of the aforementioned business financing options to take them through these difficulties.