According to findings by USA Today, lack of money is a cause of almost 4 in every 5 small business failures. Business loans are an obvious source of funding, but the good news is there are many ways of financing your small business venture.
1) Your Assets
Low interest rates
Risk of losing property in event of default
High loan amounts
Predictable fixed-rate interest payments
2) Lines of Credit
Kabbage provides lines of credit of up to $150,000 for any business expense. The terms are easy to understand, and there are no hidden fees. BlueVine provides flexible credit lines ranging $5,000 to $2.5 million. It only charges fees when you withdraw money for your business.
More flexibility than business loan
Variable interest rate
Withdraw funds on per-need basis
Collateral for higher amounts
|Only pay interest on what you borrow|
Accumulates debt, just like a loan
3) Online Lenders
Lendio is an online small business loans marketplace that brings business owners and lenders together on one platform. The site is free to use and offers more than 10 loan programs for every business need.
LoanBuilder offers customizable short-term business loans, giving borrowers the freedom to design their loans according to their specific needs and circumstances.
|Quick application process||Increases debt burden|
|Low rates and fees||Failure to make payments can hurt credit score|
No need to go to physical location
4) Angel Investors
Giving up portion of equity
|Relinquishing control over strategy|
Not a loan
|Other strings may be attached|
An angel investor is a wealthy individual who makes a one-off investment in a startup in return for equity or convertible debt. Unlike venture capitalists, angel investors invest their own money rather than other’s money. According to the US Securities and Exchange Comission (SEC) guidelines, an angel investor must have a minimum net worth of $1 million and earn annual income of $200,000 or more.
In recent years some angel investors have organized themselves into angel groups or networks. The typical angel investor is a friend, relative, or mentor of the business owner.
5) Friends and Family
No interest or low interest
Risk of damaging relationship
No need to apply to a lender
|Prospect of relinquishing some control over business|
Quick and easy
But be careful: while your loved ones might embrace the prospect of helping you with your business venture, failure to repay them could damage your relationship.
6) Credit Cards
Increases debt burden
No-interest introductory periods
Missed payments can damage credit score
Cash-back and rewards points
Expenses can spiral out of control
If you’ve just opened your business and want to build up credit before applying for a formal loan, taking out a credit card and meeting your monthly payments is a good way of achieving this.
7) Micro Loans
Useful for businesses with little capital
Rates often higher than traditional banks
Prioritize women and minority groups
Missed payments can affect credit
Microloans are loans of up to $50,000 issued by individuals or micro-lending institutions instead of banks and credit unions. They are designed to help small businesses with limited credit history and capital.
Some microlenders lend money specifically to women, minorities, low-income applicants, or other groups perceived as being at a disadvantage with traditional lenders. The Federal Government’s Small Business Administration (SBA) runs a program to help match businesses with microlenders. Some peer-to-peer (P2P) lenders also match borrowers with microlenders.
8) SBA Loans
Backed by Federal Government
Lengthy application process
May require collateral
Low interest rates
Good credit required
SBA-guaranteed loans can be used for most business purposes, although lender terms and requirements may vary. Only for-profit businesses located in the United States can qualify for an SBA loan. The business owners must have invested their own time and money in the business and must have exhausted other financing options.
9) Social Lending
Lending Club is among the leading P2P lenders, offering a streamlined application process with approval in minutes and funding within a few days.
|Easy application process|
Low credit can affect your interest rate
No prepayment penalties
|Missed payments can hurt your credit score|
Social lending or P2P lending is a form of financing offered by sites that matches borrowers with individuals interested in funding them. Another type of social lending is crowdfunding, but instead of paying interest on the loan, the business owner typically gives the investor an equity share or sends them a product in return for the investment.
Financing can be the most stressful thing about running a small business, but the good news is that there are many options out there. For some businesses, a loan from a conventional or online lender might be the best option. But if you prefer not to take a loan or you simply don’t meet the requirements of traditional lenders, there’s no shortage of creative financing options for you to explore.