In the U.S. 80% of the approximate 27.5 million small businesses – those that are defined to have fewer than 500 employees – utilize a type of credit to help fund their operations.
This could include credit cards, lines of credit, and bank loans.
Before the 2007/8 financial crisis, many small businesses relied on credit lines – which were regularly repaid and on time – to extend or renew their credit lines. With a simple call to a lender, this was completed in no time.
However, once the economy went south, so did the prospects of small businesses – with those businesses being directly affected.
Millions of small businesses faced their credit revoked or reduced, whereby many loans were being called in before their due date.
Although, luckily, this is something of the past, and as the country begins to make a slow recovery, small businesses are able to access whatever support they need to get their business up and running.
Oftentimes, one of the hardest parts of starting a business is generating enough funding to get you on your feet.
A nifty entrepreneur may have a killer idea, however, unless you have significant funds, your business will have trouble getting off the ground.
Thankfully, these days, there are plenty of financial options to help you grow your business. With this in mind, this article will explore two sources of finance suitable for small businesses.
Let’s get straight into it.
Deciding What Type Of Funding Your Small Business Needs
Below, we have outlined some considerations when deliberating what type of funding your small business requires.
Your Industry
Healthcare companies, technology companies, and financial institutions ensure excellent returns that make equity financing an option more attractive to investors.
Your Network
Think about what social circle your company is a part of. The more people you surround yourself with, the higher the chance you’ll meet the ‘right’ people. Or those with a higher influence that can bring investors to your business.
The Amount You Need
For startup businesses, equity financing is a great option since they require large funding to support employees, develop office spaces, growth, etc.
For those with an established business and are looking to grow some extra capital, then an ideal option for you would be debt financing.
How Fast You Require The Funding
For those that require funding as soon as possible, your best bet would be debt financing.
Typically, typical bank loans can be a slow process.
However, alternative financing options, such as a lender, can typically provide you with the necessary funds within a day or two – depending on the lender.
The Amount Of Ownership You Intend To Keep
One of the biggest factors to consider when growing your small business is the amount of ownership you want to sell.
As part-owners, investors can sometimes have the ability to control your everyday decisions and this could potentially limit your vision and growth of your business.
Ways To Raise Business Funding
Below, we have outlined two different options to help your small business secure funding.
1. Bootstrapping
There have been many examples of where small businesses have built up from the ground without requiring external funding.
During the early days of your business venture, start putting away any personal funds, you can spare, towards your brainchild.
Using the money you have accumulated over the years is a much better option than borrowing money from friends and family to help you get started.
When growing your small business, it’s important to remember that slow and steady wins the race.
However, if you’re looking to grow your business quickly, then bootstrapping may not be a viable option for you. Hence, it may be beneficial to start looking into external sources of funding – this is outlined below.
2. Loans
Friends And Family
If you have not saved the required funds necessary to grow your business or need some additional funding, then one way of achieving this would be inviting your friends and family to potentially invest in your small business.
Here, they can either provide debt or equity funding. However, it is important to make sure the person who is contributing to your small business knows all the risks involved when doing so.
More times than not, businesses can go through hard times, and even potentially fail – this can sometimes lead to hurt feelings and strenuous relationships.
Whether the person is providing an investment, loan, or gift, then you should always make sure that they understand the money may not be returned.
Bank Loans
Another option is to loan money through the bank. Sometimes, different banks keep an allocated amount of funds that they provide to small businesses for lending.
Having said that, over the years, the amount of money a bank is willing to lend has become more stringent. Hence, you will likely be required to provide the bank with collateral in the form of assets to help secure your loan.
This type of funding is best for strong business owners with established businesses and excellent credit scores.
Therefore, if your business is performing well and you are looking for additional funds in the form of a loan to help expand your business, then one way of achieving this would be through a bank loan.
Final Thoughts
You have overcome one of the hardest obstacles to starting your business: your business plan. Although, once you have a clear idea and plan in place, the next challenge you face is how you are going to fund your small business.
Luckily for you, in today’s society, there are many different options to help you get your business up and running – and two of the most popular sources of funding are bootstrapping and loans.
Hopefully, this guide has provided you with everything you need to know about growing your small business.