Current Small Business Financing Options

One of the biggest problems facing small businesses is the ability to access enough capital to get started, expand, or keep operating through difficult times. Here is an overview of your best options for seeking funding for your company.

Financing Through Personal Funds

It’s nice to keep your savings in your accounts for your personal use, but the fact is that most entrepreneurs must invest their own funds into their projects. If you don’t have money in savings, you can generate funds by selling possessions you don’t need. Liquidate a recreational vehicle, your second car, or stocks investments. You can also leverage the equity in assets you own. A home equity line of credit often provides enough money with flexible repayment terms.

When it is possible, this is one of the best ways to get your company up and running. Using your own money gives you more control over decisions, and you get to keep more of the profits. Not everyone has access to enough stored wealth to make this a realistic option. Those still recovering from the recession of 2008 often require an alternative source of capital.

Financing Through Borrowing

A traditional bank can always supply you with the funds you need provided that you are able to obtain approval for a loan. The Small Business Administration helps entrepreneurs by guaranteeing bank loans for business owners. These funds can be used to start a company, expand, or consolidate debt.

Getting funding with a traditional loan can be time consuming. Creditors are very thorough in their evaluations and only support projects that have the best chance of succeeding. The process can take several weeks or months before funds are available. Banks may also require a formal written business plan and insist on numerous revisions before approving an application. Each delay is a day of productivity lost.

The recession of 2008 hit the small business loan industry hard. Standards for approving loans tightened significantly and cut small businesses off from one of their traditional sources of capital. At the same time the demand for loans fell sharply as companies went bankrupt and potential new firms never even got started.

Things are starting to improve now, but lenders are still being cautious. Approval rates have been steadily increasing as restrictions have loosened. The slowly increasing demand for loans is an indication that the economy has improved as a whole, but the absence of these traditional lending sources over the past several years has encouraged clever entrepreneurs to seek new funding sources. These new sources of capital are now starting to displace the roll of traditional bank loans for small businesses.
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New Technology-Driven Funding Options

With a good proposal, attracting an investor to fund your project may produce quicker results than working with a bank. Online networks put entrepreneurs in direct contact with angel investors and venture capitalists. If your credit rating is high enough, a private loan can also be obtained from an online peer lending website.

Crowdfunding has also become more popular. With the passing of the Jumpstart Our Business Startups Act (JOBS act) in 2012, it is now possible for companies to sell shares to individual investors without a broker. This allows for direct communication between the company and its financial supporters. Regulated by the Securities and Exchange Commission, the rules for crowdfunding strategies were issued in October of 2015. This has clarified much of the confusion and created enough stability to make this a viable funding option.

You can presell products to generate revenue through Kickstarter and other similar websites. This tactic allows you generate funds to fill orders for delivery. This makes it easier to begin operating with a smaller initial budget.

There are a number of funding options available for your business, but it is rare for a single source of capital to meet all of your needs by itself. Most entrepreneurs must draw from a combination of resources, and not all sources of funding will always be available. You may need to experiment with different funding options to find the solution that works best.