One of the most important decisions that businesses need to make is how to get funding to fulfill their business idea and business plan. After all, you need money to purchase new equipment, venture into a different market, and launch a new product. No matter which industry you might operate in, you will need financing at one point or another. This is why it is crucial that entrepreneurs know what their options are. To help point business owners in the right direction, we have prepared the ultimate post. Here is everything you need to know.

1. Business Credit Cards

When it comes to small business or startup funding, business credit cards are a great option. The reason why you might want to consider getting a credit card for your business is that it is relatively easy to get one. The bank does not care how long you have been in business, as long as you meet the minimum eligibility requirements and eligibility criteria. Therefore, you should be able to gain access to money if you have a decent credit score and are making a profit. Although you might consider credit cards to be a great option for making payments for purchases, they provide a type of financing called a line of credit.

According to a survey conducted by the Federal Reserve Small Business Credit, it was found that around 53 percent of small businesses rely on credit cards for funding operations. This is why you should consider the option. Besides, a business credit card could be the perfect alternative to a business loan, especially if you only require minimal funding. Moreover, getting a credit card could help you establish business credit history and separate your business and personal finances. You may also need a personal guarantee to qualify.

2. SBA Loans

Another way to fund your small business startup or expansion is by seeking an SBA (Small Business Administration) loan. Keep in mind that individual lenders who have been approved by the US Small Business Administration can only offer such loans. The reason why they are worth considering is that they come with lower interest rates. You would only need to pay a higher interest rate if you get a disaster loan. With ten different types of programs available, business owners have several choices for financial assistance. The (7a) program is widely popular as it can provide up to $5 million.

With most of the SBA loans being taken up by startups, you should be able to get approved. However, the process is neither easy nor quick. If you don’t have time to spare, you could opt for the SBA Express loan program, which can provide up to $500,000. Make sure that you meet the requirements if you plan on applying. On top of this, you are going to need a business plan to cover monthly payments for most loan programs. The fact is that the US Small Business Administration prefers business owners who have some experience and are willing to agree to favorable terms.

3. Crowdfunding

If you want to fund your business, you need to consider all your options. A great way to finance your startup or expansion is by using crowdfunding platforms. They put entrepreneurs with a vision at the forefront and offer a quick route to raising money. Startups have three main types of crowdfunding options, which include investment (We Funder), debt (Kiva), and rewards (Indiegogo and Kickstarter).

Business owners have to share their objectives and goals to attract a large group of people to invest in their venture. Keep in mind that marketing is necessary for a successful campaign. However, the final reward will be worth it once you get the necessary funding.

4. SBA Microloans

In addition to the above, you also have the option to seek an SBA microloan. Only approved intermediaries, such as CDFIs (Community Development Financial Institutions) can offer SBA microloans. However, you should know that only a maximum of $50,000 can be granted, while the average loan tends to be around $14,000. Since the microloans are term loans, you will have up to 72 months to pay them off. You should be able to use the funds for purchasing inventory or working capital.

5. Additional Microloans

There are other microloans available besides SBA microloans. Small businesses should consider the following options:

Local Microlenders: One of the best ways to get funding is by opting for a local microlender. There are microlenders in just about every community throughout the US. However, these small non-profit organizations do not advertise their offerings to the public.

Kiva: It is a trust-driven and community-based platform that entrepreneurs can rely on to crowdfund their business from philanthropists. You can borrow up to $15,000 at a time. A great thing about these loans is that they provide support to struggling businesses and have an APR of 0%. All you have to do is prove to the network of lenders that you have character and are committed to helping your community thrive economically.

Accion: CDFI partners of Accion offer loans worth $5,000 to $100,000. You will appreciate the fact that credit requirements are on the flexible side. Besides this, you can even seek assistance with your application.

6. Bank Loans

Even though you might be thinking about heading to a credit union or bank before considering any other option, you need to understand that startup businesses have a difficult time getting a bank loan. This is because banks have strict lending standards which small businesses sometimes cannot meet. In order for a bank to provide a loan to a startup, it would have to ensure that it is not overly risky. It would have to require you to provide a personal guarantee, a down payment, excellent credit, and a strong personal qualification or experience in the industry.

7. Equipment Financing

If you want to buy machines and equipment, you should be able to get an equipment loan. It is the same as any other conventional loan, since you would have to pay an amount every month for a specific period of time.

The proceeds would be used for funding the purchase of the machinery or equipment. As the equipment would serve as collateral, the requirements are less strict which means that you should be able to get a loan without much effort. Apart from this, you could opt for equipment leasing. All types of assets that you use for your business can be leased, such as furniture, kitchen equipment, and computers.

8. Line of Credit

Unlike a business loan that provides a lump sum of cash up front, a business line of credit provides a specific amount of credit over a period of time. You just have to keep paying back what you owe if you want to keep using this funding option. It is possible to get a long-term line of credit.

9. Short-Term Financing

For those of you who simply do not qualify for traditional funding, it might be best to opt for a short-term loan. They have a short repayment period of anywhere from a few months to a few years. However, you will have to be prepared to pay higher interest rates.

10. Personal Funding

Have friends or family members who can chip in? You might want to consider seeking personal funding. It is one of the ways in which small business owners fund their operations. However, personal funds tend to be a huge gamble, especially if you plan on using up all your savings. In case you use personal funds, it is important that you move towards establishing business credit to avoid serious implications. It would also enable you to access more capital. You should be able to get the business up and running without having to compromise your personal assets or relations.

If you cannot get a business credit card, you can always use your personal credit card as long as you have a high limit. It would allow you to make those initial purchases. However, you have to keep in mind that using a personal credit card for your business expenses can hurt your credit score. Using your savings can be even riskier. You might want to borrow from home equity. Otherwise, you have the option to withdraw money from your retirement plan.

Conclusion

Running a business is tough. As an entrepreneur, you need access to funding. As there are different options available, it is important that you weigh your options carefully. Discuss your choices with business partners, financial planners, and choose those that align with your plans. 

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FAQ

How do I fund my business expansion or startup?

In order to fund your business expansion, you should consider taking out a bank loan from a traditional bank or credit union and using your business credit card, along with applying for federal grants and linking with other investment options like angel investors, equity investment partners, venture capitalists, and individual investors. You can also leverage your real estate and take advantage of other funding opportunities from personal investors and other private lenders. 

What are the most common ways to fund a small business?

The most common ways to fund a small business is through personal funding and business loans.

What can I do if I don’t have good credit?

You can borrow against your home equity, partner with friends or family, find private equity lenders willing to lend to you, seek grants, and more.