Funding for small businesses, how the options work

There is a lot that goes into starting and running a small business. From taking the first steps in the world of businesses to managing day-to-day needs, your small business needs a steady source of funds for many reasons. However, you do not need to dip into your savings to meet the expenses. You have the following funding options to help you out.

#1 Online loans from non-banking institutions

You no longer need to visit an actual bank to get the money needed for your business. Non-banking financial institutions have made it easier to apply for small business loans online.

Loan amount, interest rates, repayment tenure, and additional charges vary from one lender to another. However, a common factor is that you’re generally allowed to use the money as you want. So, you can consolidate your debts, buy equipment, or expand overseas using the loan amount.

Benefits

• A faster way to secure the funds
• The process of pre-approval is usually available
• Lenient requirements to qualify

#2 Business line of credit

If you go for a business line of credit, you can borrow money from time to time as per your business needs. When you just want a fixed source of capital and can’t exactly spell out a figure your business needs, establish a line of credit. It works like a credit card – you borrow money up to the credit limit of the account. Then, you repay the amount and you can borrow again.

Benefits

• The flexibility of borrowing multiple times from one credit line
• Helps in establishing business credit
• The interest is levied only on the amount used by a business

#3 Business Credit Cards

Business credit cards are easy to avail of if your credit scores are good enough. There are not too many complicated qualification criteria in this case of business financing. The only issue with a business credit card is that it typically comes with a higher rate of interest. However, you can bring down the interest rate to some extent if the personal credit scores are high.

Benefits

• Helpful in establishing business credit
• Earning cash back or rewards on spending
• No interest to be paid if the statement balance is paid on time

#4 Small business grants

Small business grants are particularly lucrative to business owners because they do not need to pay the money back. Also, they do not have to give up shares in the company or pledge any collateral. In all true sense, small business grants are free money. But the biggest issue is that small business grants are not that easy to get. Too many other businesses will be vying for the same grant as yours.

Benefits

• No monthly payment to consider
• No need to offer business equity for the investment
• No need to repay the funds given to the business

#5 Working capital loans

Another business loan that applies online is a working capital loan. Small businesses take this loan to meet their short-term requirements of liquid cash. Maybe you want to expand your business, offer a new product or service, or buy new equipment. A working capital loan is taken to meet all these expenses that are mainly related to running the day-to-day business operations. These are typically short-term loans, though you can talk to the lender if you want to extend the tenure.

Benefits

• Easier to secure for a business running for a few years
• Available at affordable interest rates for some lenders
• Can be applied online for the loan

#6 Invoice factoring

If your business is involved in offering products or services to other companies, you can try invoice factoring to get the funds. In this case, you will be selling the outstanding invoices to a third party. This third party gets you the money right away in exchange for your invoices. They collect payments from the customers of your business, and you get the rest of the balance after their fee is deducted.

Benefits

• Lenient funding qualifications
• The flexibility of using the funds
• Getting access to funds in a short time

#7 Crowdfunding

In the case of crowdfunding, you pitch your ideas to a group of investors online. If they like your idea, they offer the funds needed for your business. The crowdfunding sites for small businesses have a group of financing individuals to let your ideas reach out to different investors on different platforms. It can be debt crowdfunding where you need to pay the amount back. Or, it can be equity crowdfunding where you are seeking investors.

Benefits

• Low financial risks in most cases
• A way to test business viability in the market
• Building brand awareness and getting customers’ attention

The funding option you choose is based on your preference, convenience, and monetary needs. However, regardless of the option you choose, make sure to check the lender for authenticity and reliability.