There is a large growth in alternative funding options for small business owners. The amount of options out there may seem intimidating, but should be viewed as an opportunity to fund a company no matter what your situation is. The following are only a few examples of possibilities for financing your business.
1. Business Line of Credit
A line of credit acts like a conventional credit card, and is much more flexible than a typical loan. Just like with a credit card you have a limited line of credit, and only pay back the portion you borrowed. Business lines of credit range from $1,000-$250,000. This makes them ideal for buying inventory, covering unexpected expenses, and managing cash flow. Most banks require a business to have a few years of history and considerable revenue to qualify for lines of credit, so they may not be an option for brand new business endeavors.
2. Small Business Credit Card
Business credit cards are not meant to fund large investments, but can be essential to any financial toolbox. They are ideally used for making payments while waiting for money to come in from customers and expected income. Business credit cards are desirable because they are paired with cash back rewards and many have a 0% introductory interest rate. They are ideal for a new company with little or no revenue; usually the only qualification is based on personal credit score and income. The downfall to this is if your credit score falters your card could be closed suddenly without warning.
3. Term Loan
Term loans are usually what come to mind when people think of loans. Term loans are used to pay off large investments and purchases, and then it is paid off during a set period of time. These loans have a predictable payment structure, lower monthly payments than short-term loans, and can be used for a wide range of large expenses. To obtain a term loan you must be generating revenue and have a decent credit score.
4. Small Business Administration (SBA) Loan
SBA loans are specifically for newer entrepreneurs with small business. Compared to other options SBA loans have a low monthly payment and long repayment term. The catch is they are relatively difficult to qualify for, requiring a good personal credit score and at least two years in business.
5. Stock Loan
A stock loan is unique in the fact that it utilizes stocks as a form of collateral. Stock loans are optimal for entrepreneurs who do not want to sell their stocks, but need cash for their new business. Non recourse stock loans use stock as collateral, with the value depending on the stock’s price, volatility, and security. This type of loan is attractive to business owners because they can retain access to their stocks while using them as a liquid asset for their company.
Crowdfunding has become such a common word in our vernacular that it is easy to forget it is a relatively new term. Crowdfunding, another word for individuals contributing to a goal to support a product or company, has recently blown up due to exposure of campaigns all over social media.
This funding method can be used for any start-up, but some are more easily funded than others. Tech gadgets, entertainment products such as books and video games, local services, and unique and quirky inventions are most likely to gain momentum. Sites like Kickstarter take 5% of profits, and all profits are expected to go towards the product or company. Another cost to consider is if you choose to offer rewards for pledgers donating money.
The Bottom Line
There is a plethora of options for funding a small business. You should carefully consider your needs, revenue, credit score, and how long you have been in business before jumping into any loan or financial decision.