Effective business financing is one of the necessary aspects of growing a business, but it could be difficult to find capital for your business and you are not sure where to start in a best way.
Whether you are looking for start up funds, capital to expand your business operations or funds to go through the tough times, this article will point you in the precise direction. We have gathered the most common and realistic ways of getting financing for a small business that anyone can take on to raise funds for business of any type.
Business Loans and Lines of Credit
These are the well known and common ways to meet financial needs of a business. A business loan is a specific sum of money given to a business that is repaid over a mentioned period of time along with agreed interest rate. On the other hand, line of credit is a facility offered by banks and other financial institutions that can be used when needed and paid back on regular basis like every month. Getting a business loan or line of credit could be difficult for new businesses as there are many requirements for getting a business loan approved that a startup cannot fulfill. However, an established business or company can easily get a business loan approved to meet its financial needs.
Using your own money is the easiest and efficient way to finance a small business. Wise entrepreneurs save money for years and then use that money to fund their business settings. Use of personal savings is a safest way to start a new business or fund a startup. But the problem with this type of business financing is that there is a limited amount saved that may not be sufficient to meet financial needs of a business. Most of the entrepreneurs take money out of their homes, retirement plans and insurance policies to run their business operations efficiently without applying for a loan. However, it is risky strategy because if your business fails, you stand to lose your home or retirement funds.
As business loans are usually based on the strength of your business and credibility, personal loans are based on your personal financial health and creditworthiness. Personal loans are easy to apply and useful for small business owners, entrepreneurs, startups, and other organizations that don’t have a strong credit history to apply a business loan. However, one should do proper research when looking for a loan to make sure you get a better interest rate and flexible conditions. Personal loans are available from banks, online lenders, financial institutions and credit unions etc. One should have a steady income source and good credit history to qualify for affordable interest rates.
Business Credit cards
In this competitive business landscape, credit cards are known as one of the best ways to finance small businesses. Businesses can use credit cards to make payments to suppliers to earn credit card rewards, cashbacks and discounts as many business credit cards come with such offers and facilities for businesses. However, one shouldn’t be using a personal credit card for business funding as it could be expensive in terms of higher interest rates and lower credit limits. Always sign up for a business credit card that offers cashbacks, credit card rewards and discounts. It helps you save business money while funding your small business.
Raise Money for Business from Your Family and Friends
Reaching out to family and friends for getting money to fulfill business needs is one of the common and effective ways to finance a small business. When blood relations are turned into creditors, you are not only risking their financial future but endanger important personal relationships too. That is the reason, always create and sign a loan agreement when taking money from family or friends for your business to make them feel relaxed regarding they will get their money back for sure. Also keep providing them with formal financial projections and evidence-based assessments to make sure they will see their money again as agreed. By doing so, chances of unpleasant surprises are reduced.
Attract an Angel Investor
They are private individuals or business owners who are always looking for investment opportunities. They can help you fulfill your financial needs by making an equity purchase. They are open to provide small businesses with funds, expertise, consultancy and guidance to help start and grow small businesses.