By: First Union
The Best Business Funding Options
Most businesses need funding. It is that simple. They require funding for a variety of reasons, from payroll to expansion projects to enhancing cash flow. There are a ton of options out there when it comes to getting funding. The question is which may be best for your small business. In this article, we take a look at several business funding options that could help small business owners when they need cash most.
Business Funding Options
Business loans of course are the go-to for many entrepreneurs as they set about finding the money needed to help their business along. That said, within the category of loans, there are several different types. Which kind you choose will depend on how much money you may need, what type of project you need to be funded, how quickly you need the cash, and also your credentials, so credit score for example. For those who have a solid credit history as well as a positive cash flow, the business funding options are going to be a bit more open in terms of what type of loan they qualify for.
SBA loans are highly popular; that said, you do need to have a certain credit score as well as at least two years in business to apply for an SBA loan. The most common business funding option as far as SBA backed programs is a 7(a/) loan. These are capped at five million and can be used for just about any business need. The good thing about SBA loans and what's makes them so attractive is that interest rates are generally low and there is a longer repayment period attached.
Lines of credit tends to be a little faster and easier to get than an SBA loan. And the good thing here is that you only pay interest on what you draw out, not on the total loan amount. Keep in mind, that if your revenue drops off, the lender can call the line of credit is and then you'd have to pay off what you owe.
Term loans are also a very common business funding option. It is a lump-sum payment, and with short-term loans, the repayment period can be anywhere from 6 months to 3 years—usually, however, it is less than a year. Depending on your credit score and other factors, the interest rates will vary. The higher your score, the better rate you will get.
Merchant cash advances or MCAs give you money upfront for a percentage of your future credit card sales. So if a company does do a lot as far as credit card transactions this could be a viable option. As the loan is secured by your future sales, these tend to be easier to get. Every month the lender will take a percentage of all your sales. During slower seasons this can be trickier, but then again when sales are up, this option could work well.
Equipment financing is one of the easier business loans to get as the equipment you are purchasing stands as the collateral, therefore the loan is secured. If you default on payments, the lender simply seizes the equipment and sells it by way of recovering lost funds. Keep in mind, that you are stuck with the equipment for the life of the loan, so if it is something that becomes irrelevant or outdated after a short period, this might not be the best funding option.
Beyond loans, a small business can apply for grants as well. Grants unlike a business loan typically do not have to be paid back. Who doesn't like free money…That said, grants tend to be much harder to get and they can also take some time to procure. The application process when it comes to grants can be somewhat tedious. It may also involve interviews before a panel. Not to mention, the number of grants out there are far fewer than business loan opportunities.
Crowdfunding has grown immensely in popularity over the past few years. Basically what happens is you put together a campaign which you then upload to one of the crowdfunding platforms. You want to research the platforms to see which may be the best fit for your business. The next part involves driving people to that page so that they see your pitch. This is going to require some marketing know-how.
With a crowdfunding campaign, you will most often have tiers. Each tier comes with a reward. So if someone pledges 50.00 they may receive a t-shirt for example. And if someone pledges 100.00 they might get a t-shirt plus a discount. Crowdfunding does come with fees as far as the various sites go. You want to be sure to take this into account as you establish your campaign and consequent tiering.
The use of personal assets is quite a common way that businesses get funded. People utilize their retirement accounts, savings, home equity. There are a variety of ways you could go here when it comes to tapping into personal assets to finance your business. You do however want to plan for the future; meaning, you don't want to leave yourself with anything and then be in trouble down the road if the business does not get off the ground.
The good thing about personal assets is it is relatively fast to gain access to the money. You're not having to fill out applications and provide documentation. Some people will even take out personal credit cards to this end and use those. Be careful though of getting into too much debt this way as the interest on a credit card can be rather high.
Some entrepreneurs will also ask friends and family for help. If they do indeed have the funds this is of course another convenient route to go for funding. On the flip side though, numerous relationships have been ruined because of a disagreement about the loan.
These are people who use their own money to fund businesses they believe in. The angel investor usually is not expecting repayment but instead wants a share of the company itself. So the good thing is you're not worried about having to pay for a loan, the negative here is that maybe you do have to give up some control and say in your company.
First Union Lending offers a variety of business funding options to suit small business needs. Call today to see how we can help!