If you want to get a small business off the ground, you need capital. For many people, this means scrimping and saving to go into business without also going into debt. But you shouldn’t feel like you can’t grow your business any further once personal savings and revenues fall short.
There are other options for funding a small business, whether you need to cover startup costs or you’re already running and need to cover equipment upgrades or expansion costs. Personal savings is just one piece of the puzzle. You can also use business credit cards or lines of credit, crowdfunding platforms, and small business loans. Let’s take a closer look at your options for funding your small business.
Personal Savings
Plenty of people choose to use personal savings to fund the start of a new business. If you can manage to save your startup costs, you’ll be able to go into business without incurring debt – and that can make or break a business in those first, dicey months when many new businesses fail.
It’s also not uncommon to ask for money from friends and family to help fund the startup of a business. If you do this, you need to make sure to treat your loved ones just like you would any stranger looking to invest in your business. Explain the risks of investing in your business and answer their questions honestly. If they choose to lend you money, put the agreement in writing and pay back your loan as agreed.
Crowdfunding
Crowdfunding platforms allow small business owners to solicit funds from a wide audience of fans. Many people have been able to get the money they needed to start a new business or launch a new product using crowdfunding. It’s a particularly good option if you’ve managed to garner public interest in your business or your work. Rewards-based crowdfunding, in which supporters receive a product, access to an event, or another token of your esteem in reward for donating, is popular among small business owners. You can also choose debt-based crowdfunding, in which supporters loan, rather than donate, their money, or equity-based crowdfunding, which allows investors the opportunity to buy equity in your company. Usually, however, seeking investment funds only works if you plan to grow the business and take it public.
Traditional Small Business Loans
Traditional small business loans are hard to get to cover startup costs, because traditional lenders typically want to take something as collateral for a business loan. However, if you’ve already been in business for a couple of years and need an infusion of cash to grow your business, then a traditional small business loan might be the best option for you. You’ll get the best interest rate from a traditional bank, but the application process will be longer so you’ll need to be able to wait to get your money.
Online Small Business Loans
If you need money right away to cover operating expenses, or you haven’t been in business that long but need money for equipment or other upgrades, non-traditional online small business loans might be the best option for you. Online lenders tend to have less stringent application requirements than traditional lenders, so you can get one if you’ve been in business for at least six months. Online lenders will usually process small business applications fast, too, so you can get your money within a matter of days – maybe even the very same day you file the application. That can be a lifeline if you need money for payroll or other daily expenses and need it fast.
Business Credit Cards and Lines of Credit
As previously mentioned, it can be hard to get a bank loan to start a small business, because you haven’t actually built anything yet that can be put up for collateral. However, you don’t need collateral to open a business line of credit or a business credit card. With one of these lending tools, you can borrow exactly as much as you need up to a borrowing limit. Sure, the borrowing limit might be only several thousand dollars, but that might be enough to service your first few clients or put together your first prototype so you can get your idea off the ground.
When it comes to funding a small business, it pays to know your options. That way you can get the funds you need to start your business and keep it going, on terms that you can work with.
