There are plenty of reasons to explore options for small business financing. Perhaps you have a great idea for a new business, or maybe you are looking to add to the revenue stream of an existing one. When you need to finance a small business, these seven sources of revenue warrant a second look.
1. Family and Friends
This may very well be the best way to find a new small business. Family and friends might be willing to take a risk on your idea when banks are not. However, you risk straining, or possibly ruining, relationships if things don't go as planned. Be sure to carefully weigh the potential risks and benefits before deciding to ask your personal network to fund a business idea.2. Conventional Business Loans
Talk to your current bank about their business lending programs. Many community banks offer conventional business loans and lines of credit that might fit your needs. They may require you to maintain savings or checking accounts with them as well, but there are benefits to keeping your accounts in one place. For example, it can definitely streamline the process of taking out and paying back a loan.In many cases, especially if you are just getting a business off the ground, your personal credit will play into whether or not you can secure financing. Luckily there are options for bad credit business loans, so even if you have missed a few payments or have a less than stellar credit history, you may still be able to secure funding.
3. SBA Backed Loans
The Small Business Administration supports companies by partnering with lenders to offer government-backed financing vehicles. These SBA loans help reduce the risks banks face when lending to small businesses and help facilitate the process. In addition, they have local resource centers that provide invaluable resources to help you plan, launch and manage your business.4. Angel Investors
For new businesses looking to get off the ground, angel investors may seem too good to be true. These are generally individuals who are willing to provide seed capital to a new business. Just like with any type of funding, there are pros and cons to working with angel investors. If the business doesn't pan out, you generally won't be on the hook for the invested amount. However, investors will expect a sizable return on their investment if the company takes off.5. Grants
Small business grants are like the golden goose of funding. As long as you meet the conditions put on the grant funding, such as meeting certain metrics or performing a particular action, then you will not have to pay it back. That is as close to free money as most businesses or individuals will ever get. There are some drawbacks, however.For starters, most are only available to nonprofit organizations. With careful research, you can find some that are open to for-profit and public businesses too. You will also need to meet the conditions of each grant, which will need to be documented and reported to the grantor at predetermined times.
6. Factoring
For businesses that are already established, factoring allows you to tap current sales to generate cash quickly. It can be a useful tool in growing a business in the right situation. Factoring basically allows you to borrow against money owed to you by existing clients. It allows you to receive immediate payment on invoices as you generate them, with the factoring company collecting the balances owed.7. Secured Line of Credit
In a situation where you have business assets to leverage, you may want to look at a secured loan or line of credit. Because you are putting collateral up against the balance, banks see these as a lower-risk than unsecured loans. Be very careful about using personal assets such as a home to secure a business loan. If you are unable to make payments or the business fails, you may find yourself in a dire situation.What type of funding that you choose for your business will depend on several factors. Use this list as a guideline to start exploring which one might be right for you.
