Without investments, it is practically impossible to start any business on your own. To develop any business, be it small or big or belonging to any domain, you need funding. However, you may not know where to source your funds from. You can get a business loan or check out other available financing options to establish your small business.
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4 small business financing options
- Investor: To get some quick cash for your small business, you can try to find private investors. Your investors might be more flexible with regards to their requirements. They may accept cash flow troubles or storied credit. The investor might have other necessities that are generally not identified with traditional lenders. The investor, for instance, may prefer to have an ownership stake in your business. If you are prepared to share some business equity, then you can avail of this business loan. Moreover, the investor might want to have some say in crucial business decisions. It could be even full control of your business. This again depends upon the amount of equity they have. If you are ready to give up control at least partly, then you can seek this small business financing An investor is definitely a wonderful solution to avail loans. However, you need to identify & understand the possible drawbacks.
- Bank funding: You can get a business loan from different banks. However, the process can be quite lengthy & complex. Moreover, your bank might want to look at your financial statements & tax returns for several years. This should be prepared by a qualified & certified CPA. Also, they will be interested to know your detailed budget & business plan. Your business should have a powerful credit story, while you should have a high credit score. But still, whether your business loan will be approved or not will depend upon the bank authorities. They may or may not provide you with the necessary funds. Hence, it is not that easy to avail this type of loan.
- Factoring: This is another smart small business financing option to avail. You can check this out, if you are not interested in an investor or not eligible for bank lending. In this unique funding solution, you need to sell off your outstanding invoices. This should be done to a 3rd party company, referred to as a factor. They provide you with some percentage on invoice balance, which is generally 80% to 95%. Then, the factor collects the invoice amount from your customers and forwards you the balance amount after deducting a small fee. The factor, however, is not bothered about your credit history. They are rather more concerned with the invoice paying ability of your customers. Factoring is the best small business financing option to avail if you issue invoices with certain payment terms. Also, your customers should have solid credit. The factor in many cases might approve your application, allowing you to avail funds quickly.
- Friends & family: You can seek a business loan from reliable friends & family members. This holds true, especially if you do not have other options to avail of. They are likely to overlook some crucial issues that investors or banks may object to. It can be lacking business history, lacking a business plan, or credit issues. But this might not be a feasible loan to avail, since you may land in trouble. They might be eager to take control of your business as they have put in their investments. Your leadership might get disrupted, thus putting your business at stake. Failing to repay the money on time will also tarnish forever your relationship. Hence, this should be kept the last option if no other avenue is available.
Hence, you need to go through this guide to find out the best small business financing options.