In US, most of the people have had the dream of possessing their own small business. However, it is also a fact that only a small portion of people attempt it. And even fewer end up with a flourishing, successful small business. A major part of these business owners fail due to insufficient funding. Actually, in line with the US Small Business Administration (SBA), almost 33% of businesses fail in their first few years.
If you have dreams of having your own small business, make sure you reduce your chance of failure by having a strong financial plan for your new small business. But in case if you are not still unsure where to start, here are some of the major small business funding sources.
- Traditional Bank Loans
With the current economy, it is becoming more difficult to acquire a loan from a bank than it was in the past. But, it’s still an option to consider. While the small business lending requirements are much stricter than they were, there are many banks that still have some funds for small businesses. And frequently they have a lower APR, which means less money to repay as compared to a number of the other loan-based options.
Some other considerations when getting a traditional loan from bank consist of a good credit score, normally 700 or higher, collateral as well as patience
Self-financing is a well-known funding option for startup businesses. First you need to understand that what your assets are, your savings accounts, your commercial vehicles, real estate, retirement accounts and some other type of investment. These all factors can play an important role in your ability to self-finance your business.
If you are looking for self-financing, consider getting a home equity loan on the part of the loan that has already been paid.
- Personal Savings
Personal savings is possibly the easiest way to finance your business. Preferably, you should save some cash for a period of time and use this money to fund your small business. This is probably the safest way to start a business. However, you are limited to only use the money that you saved.
However some small business owners take money out of their homes through a home equity line of credit, some use their insurance policies and retirement plans funds to run their businesses. This process is quite risky because if your business fails, you will lose your home, retirement funds, or insurance.
- Credit Cards
Funding your business by using a credit card is a risky business. If you are late on your payments, your credit score gets exhausted. However, paying only the minimum each month will also lead you to financial trap. If used sensibly, a credit card can get you out of financial troubles.
- SBA Microloan Program
Microloans are short-term, low interest rate loans provided by the SBA. They are the excellent business financing options for small businesses with minimal capital requirements. Normally, a microloan can range from $500 to $50,000. Luckily, people who don’t have business credit history, can get these loans from micro lenders.
- Small Business Loans and Lines Of Credit
Both of these are renowned business funding products, in which the lender provides funding to run your small business. In a loan settings, the lender gives you a set amount of cash that you need to repay over set term. A business line of credit gives a revolving line that can be used when needed and can be repaid on a regular basis.
Getting a small business loan or a business line of credit can be quite tricky. The lenders’ major focus is in getting paid back and their preferred way of getting paid is through the cash flow that your business already generates. Consequently, they will only offering funding if they see a proven track record of business earnings and assets.
- Small Business Grants
One of the great small business funding sources is small business grants. The great thing them is that you don’t have to pay them back. Once you get the grant, it is all yours to use it to invest in your small business plan. However it is quite hard to find one. It takes searching in your region to find one that is a good fit for your business planning.
- Invoice Factoring
Invoice factoring is another type of business financing that has been gaining appreciation in recent small business lending market. If your small business is experiencing cash flow problems and your clients are paying their late, invoice factoring can provide a consistent source of funding. If you are working with the government and commercial clients with good credit, using invoice factoring to fund your business is an excellent option. It also can help you in improving your cash flow if used appropriately.
- Purchase Order Funding
Similar to factoring, purchase order funding is also gaining acceptance currently. The purchase order funding is especially designed for businesses that resell products at a markup. If you are a business reselling products, purchase order financing is an excellent funding option for you. In this setting, the lender directly pays to your supplier.
- Online Lenders
At present, online lending has become the lifesaver for small businesses. It is no doubt the quickest way to get the required funding for your small business. Depending on the type of your loan, you can get funding in just 48 hours. If you are experiencing bad credit issues, you still can get funding from alternative lenders. However only established business can get funding from alternative lenders. Normally, the alternative lending requirement is your business needs to be at least 3 months old to approve for this type of funding.