Common Sources of Small Business Funding
Precious capital is always a source of concern for businesses. How and when you finance your operations can make the difference between success and failure. While any money infused into your company may seem like a plus, there are different sources of small business funding, some better than others.
Fortunately, you have many options when it comes to getting your business off the ground and accessing working capital. Here are some of the most common sources of small business funding. Depending on your situation, there should be one or several that will suit your needs.
-
Self Funding. This entails spending your own money to finance your business. You can tap into your savings, a retirement fund, or the equity in your home to raise cash for your small business. All of these options are risky, and some could involve penalties.
-
Family and Friends. Another risky option is to ask family and friends to help fund your business. If you do this, be sure to draw up a contract to make the loan official.
-
Credit Cards. Many small businesses are funded, at least in part, by credit cards. This is a high-interest option but one that provides fast access to cash when needed. It might also involve intermingling personal and business expenses.
-
Crowdfunding. If you have a unique and attractive business idea, you may be able to raise funds for your startup through a crowdfunding campaign which involves donations.
-
Angel Investors. Provided you expect your business to "take off" in the future, angel investors may be willing to fund your startup with the expectation of a high return on their initial investment.
-
Venture Capitalists. Venture capitalists are similar to angel investors but, instead of being individuals, most are investment banks and other consortiums who agree to invest in your company in exchange for a percentage ownership of the organization.
-
Traditional Bank Loans. Most small businesses turn to traditional bank loans for business capital. There will be some requirements, including having a strong business plan to present as well as an outline of how you plan to spend the money you borrow. Ready to apply for a business loan? Here are several tips to help you prepare a small business loan application.
-
Commercial Real Estate Loans. If your plans involve real estate, there are commercial options available for mortgages as well as construction loans.
-
Commercial Lines of Credit. Working capital is essential for any business, and you can access this with a secured or unsecured business line of credit. This will provide your company with funds whenever the need arises.