Sources of Funding for Your Small Business Idea

Sources of Funding for Your Small Business Idea

The necessary financing needed to support the initial growth of your small business can be challenging to secure, and while it makes the most sense to diversify your sources for capital, you first need to know where to look.

Below is an overview of some different funding options available to small business startups.

SBA Loans

The Small Business Administration (SBA) is an arm of the government that helps small businesses get long-term, low-cost loans. While it doesn’t directly loan money to businesses, the SBA encourages lenders to approve small businesses for borrowing by guaranteeing all or part of their loans. This reduces a lot of risk for lenders. Out of the different types of loans the SBA offers, the 7(a) program is the most common because it’s the most flexible SBA loan available. Through this program, borrowers can access up to $5 million in funding for working capital, equipment purchases, real estate buys, basic startup costs, and even debt financing.

Business Lines of Credit

Essentially like a credit card, you’re given access to a certain amount of capital that you can draw from whenever you want or need. You’ll only pay interest on the money you actually use, and once you repay your lender, you’ll have access to the full amount again. That’s why lines of credit are called rotating or revolving credit lines.

Business Credit Cards

If you don’t need excessive amounts of capital funding, business credit cards are an easy and affordable solution. An easy way to separate personal and business finances, they can also help to establish business credit. Choose a card with a 0% introductory offer. Use a no-fee card for cash advances then transfer the balance to the card with the 0% interest rate.

Angel Investors

Commonly leaders in their own field who have the time, money, and inclination to invest in small businesses and entrepreneurial startups, angel investors typically contribute their experience and network of contacts as well as their technical and/or management knowledge. In exchange, they often will supervise your company’s management practices and share in decision-making power.

Crowdfunding

Made popular by sites like Kickstarter and Indiegogo, crowdfunding is the process of requesting investments from family, friends, or strangers to help fund your business. This could be an attractive option for entrepreneurs who may not have an established track record, but who can demonstrate the potential growth and sustainability of their venture or product to potential investors.

Bank Loans

Bank loans provide short-, mid-, and long-term financing, and they finance all asset needs, such as working capital, equipment, and real estate. Interest rates charged by banks are typically much lower than rates charged by other lenders, and they typically offer flexibility in terms of early loan payoff. Banks want assurance of repayment and try to reduce their risk as much as possible, so be prepared to present a lot of documentation, including a personal financial statement, copies of personal tax returns, and a business plan.