Small business financing refers to the different means by which a current or aspiring business owner gets money to open a new business, buy an existing business, or raise money for various other business purposes. Small businesses, also known as startup companies, seldom require outside capital. That’s one of the main reasons why more people are resorting to using their home equity or personal assets as the source of funds for their new ventures. However, not all entrepreneurs want to risk their house, land, and even their life-savings just to get a business off the ground. There are many business financing options available, and here are some of the most popular ones:
Angel Investors. These are individuals with extensive experience in dealing with small businesses who give small businesses cash in exchange for a stake in the business. An angel investor must be willing to provide a significant amount of personal assets as collateral to ensure his commitment to funding a business. Usually, they require a significant amount of equity (more than 50%) to secure the loan.
Crowdfunding is a newer small business financing option. In this method, entrepreneurs and aspiring entrepreneurs apply for startup loans or other forms of credit from various third party lenders. The purpose of this fundraising strategy is to raise enough capital from a variety of sources to launch or expand an existing business. As part of the financing program, the entrepreneurs agree to compensate the lender for providing the credit, based on a percentage of sales.
Line of Credit
A line of credit is a specialized form of business financing. That provides borrowers with cash support only when they need it. This type of funding can be very useful for entrepreneurs who have no other options for raising capital. The lender may only require that borrowers pay back a certain percentage of the total loan balance every month during the life of the loan.
Build Business Credit
A business loan can help entrepreneurs and startup companies raise the money they need to get started. Business loans are typically used for start-up costs, such as office rent, supplies, computers, and more. Business credit can build over time through timely repayment of outstanding debts. As long as the repayment schedule and interest rates are affordable for the borrower. A business loan can help them get off to a good start.
Angel Investor Networks
Angel investor networks can provide entrepreneurs with a variety of capital options, including pre-seed money, seed money, and venture capital. Although angel investors can provide start-up funding. They do not have access to private equity or lines of credit like traditional bad credit payday loans. They do, however, enjoy the benefit of being able to approve projects based upon personal referrals, contacts, and prior experience.