With so many financing paths to choose from, the process can get overwhelming. Fortunately, we’re stepping in to break down seven ways of getting the capital you need.
For small and medium businesses, financing is often an essential, drawn-out process. It’s an even bigger challenge given that the latest financial times have made lenders more guarded. So what do business owners do when they’ve already approached banks, family, and friends? Many with zero track record or poor credit bypass traditional loans in favor of alternative financing methods. The good news is that there are plenty of options out there. To help you get a handle, we’ve broken down seven types of small businesses financing. Some take more effort than others, but each one is a game-changing opportunity.
Works for: Small businesses with high-growth potential and a serious need for cash.
In this case, an outside group provides capital in exchange for an equity stake, i.e., part ownership of the company. A form of equity financing, venture capital (VC) serves businesses that anticipate growth and need funds to sustain development. But it’s not just money they have to offer. Giving a venture capitalist a seat at the table also gives you access to their knowledge and industry connections. This option can be especially beneficial for small businesses selling products or services that could be considered risky. Unlike banks, VCs typically favor innovative companies and invest despite the risk because they expect a high return.
Small Business Administration Loans
Works for: Eligibility requirements vary among loans, so check with individual lenders or programs.
The Small Business Administration (SBA) wants to make accessing capital easier by matching businesses with lenders. While the agency does not lend money directly, it does set guidelines for competitive rates, continued support, and benefits. According to the Small Business Administration, SBA-guaranteed loans generally have rates and fees comparable to non-guaranteed loans, lower down payments, flexible overhead requirements, and counseling and education support. In addition, for some programs, collateral is not required.
Business Credit Cards
Works for: Any business owner, but especially those looking for regular access to financing in the form of credit.
While it works like a personal card, this version is dedicated to business purposes and expenses only. How does it compare? You can expect a higher spending limit, lowers interest rates, and better intro perks. There are options for owners in the process of rebuilding their credit, although in general, you’ll need good credit to qualify.
Invoice Financing with Crowdz
Works for: Small businesses short on time with outstanding invoices and late-paying clients.
Turns out a pile of unpaid invoices can actually fuel a healthy cash flow. Invoice financing is the process of selling these account receivables for an advance payment. Here’s how it works: A small business chooses which invoices they’d like to upload onto the Crowdz marketplace. Then, vetted funders bid on the invoice. The winning funder fronts the invoice amount at the rate they bid. Companies repay funders once their customer settles the bill. With Crowdz, there is no limit on the frequency or quantity of invoices sold. You can check out all the details here.
Works for: Owners that need capital to obtain, upgrade or replace costly equipment.
Splurging on equipment outright can drain your cash flow. Enter Equipment Financing. This type of loan helps you get your hands on specialized equipment and machinery essential to running your business—think vehicles, copy machines, office furniture, commercial ovens, and more. The item itself acts as collateral for the loan, and you’ll be able to write off any interest paid and the depreciation come tax time. You can look into options both with banks and online lenders.
Small Business Grants
Works for: All small businesses and especially minority or women-owned.
Free funding? Sign us up! Sure, you’ll have to put in the work to apply, but not having to pay the amount back should be a HUGE incentive. And there are numerous options worth exploring: private, federal, state, local. It really comes down to choosing the one that fits your profile and needs. There are even some geared towards minority and women-owned companies. Want to learn more? Check out federal options here and investigate what your local state has to offer.
Business Line of Credit
Works for: Companies with strong credit that are looking for flexibility in their funding.
Maybe your company is seasonal, or your need for capital is unpredictable. In that case, applying for a business line of credit can be a worthwhile option. It basically works like a credit card. Owners have a certain amount of funds they can dip into when needed and only pay interest on funds used. Not only does this constant source of financing provide some peace of mind, but you’ll have access again once you pay back what you owe. They can be difficult to qualify, though. But don’t let that deter you! A business line of credit serves a range of needs—including buying inventory, filling the gap during seasonal cash flows, and paying off debts—so the payoff is generally worth the trouble.
Choosing Your Financing Route
With so many avenues to take, how you get your capital depends on factors specific to your business and financial needs. The good news is there are plenty of possibilities and, of course, we’re here to help.