To be honest, financing your business can be done in countless ways in today’s fast world. The options are readily available around the globe, out of which only a few options are difficult to acquire. This difficulty is only because of the different eligibility criteria that need to be followed to get some money.
The majority of the people are still stuck on the bank loan option as they are unaware of the variety of other options. There are multiple methods of acquiring money in a quick and fast that people need to know about. People have various personal and professional commitments to fulfil with the help of money. They might need additional finance in the form of loans or borrowings. Many entrepreneurs need finance for their working capital on a frequent basis, and there is no harm in borrowing.
Raising money from different sources has been a common practice since forever. People never have the desired sum available, and they often ask different parties who may lend them some. For a business to thrive, the owner might end up taking small business loans or acquiring money in different ways. Hardly a small proportion of businesses run on their own money for a long time period. Sooner or later, the need for additional finance rises up, which needs to be catered as soon as possible. If the business is running short on finance, then there is a higher probability of its failure or loss in the long-term.
If you are new to this and do not know which financing method is best for you, then look at the list below. It is a list of some common financing options to finance your business as soon as possible. Let’s get into it right away.
- Personal Savings:
Personal savings of self-funding is the most reliable and safe method to increase your finance. A lot of new start-ups rely on their personal savings to boost up the finances of their business. Since the business is new, personal savings is the best way to acquire quick and easy cash. Personal savings are of different types, like selling your car or apartment and getting an equity home loan.
- Borrowing from Friends and Family:
Most of the start-ups turn towards the friends and family option to obtain some cash. This is not really an ideal finance option, but can easily work for small businesses that need immediate cash. Also, borrowing money from friends and family does not require any documentation or formalities, unlike banks. If you have a close relationship with your friends or there are relatives who might support you, then try approaching them.
- Personal Loans:
For new businesses, getting a personal loan is easier than going for a business loan. This is mainly because of the questionable position of the new business in the financial sector. Anyways, personal loans can be easily acquired based on the credibility and health of the individual. Lenders will only ask about your credit score, debt-to-income ratio, where the loan will be used, and the source of income.
- Bank Loans:
The most common type of financing is getting a bank loan, which can be availed easily. However, the lenders at the bank will need to look at some of the business documents before approving the loan. For instance, financial statements of the company, its legal status, tax return reports, proof of collateral, the purpose for financing, etc. Besides approving the loan, there is a fixed rate of interest that will be paid monthly or quarterly by the borrower.
- Credit Cards:
Business owners typically rely on credit cards whenever they want some additional finance. This is probably the best method of securing finance, especially for new businesses. Credit cards do have a certain limit of borrowing, like a maximum of $50,000, which should not be exceeded. They are convenient to use while making a transaction almost everywhere. However, just like bank loans, credit cards also come with fixed interest rates. These rates apply only if you have surpassed the grace period, now becoming liable to pay off the interest.
- Angel Investors:
You might have never heard of this term, but angel investors do exist in the commercial sector. Usually, they are wealthy businesspersons who support new businesses financially. They give financial support to selective businesses that can give them a higher return on investment. This is a type of equity investment where no loans are given, but the investment is made in the business. The angel investors get the ownership of the business in return for the investment they have made. They are motivated to give financial support only if they can foresee a higher return on it, just like any other person.
This one word sparks joy among people, including business owners who might be looking for grants. Unfortunately, it is not that easy to obtain free money or a grant to run your business. This is why this term is not that popular in the financial sector. There are several grant programs, like federal grant programs, private and local government ones. Nevertheless, they are rarely applicable, and very few people are lucky to avail it because of the severe competition.
- SBA Microloans:
Small Business Administration (SBA) gives out small loans to new start-ups with lower rates of interest. Here, SBA lenders corporate with the new businesses and support them by giving out microloans with 6%-8% interest rates. Businesses with good credit scoreshave better chances to avail of SBA loans, where a minimum of $13,000 can be borrowed. The maximum duration of borrowing a microloan is of six years.
There are many other methods of obtaining finance as well, like PayPal working capital, trade credit, CDC/504 loans, Accion microloans, funding contests, etc. No matter which type of business you are operating in, there will always remain the need for added finance. Now that you know about the different types of financing, it will be easier to obtain finance one way or another. So what are you waiting for? Look into these options and obtain finance for the prosperity of your business.