Small Business Financing: Where to Find It
Five options for business owners to put money to work.
Operating a small business presents many challenges to business owners. Taxes, employee management, marketing and business development are among the tasks small business operators must manage. They also need money, for without a steady flow of funds, even the most successful small business can soon find itself cash poor.
Financing a small business requires creativity on the part of business owners. Grants and government loans are hard to come by, leaving small businesses to explore a variety of options to fund their businesses.
1. Home equity — You can tap the equity in your home to fund your small business. If you’ve owned your home for many years and have seen it appreciate in value, then you may have enough funds to tap to lend to your business. The risk here is that you’ll make your home vulnerable if your business were to fail. This may not be the type of risk that you want to assume. Check with your banker regarding borrowing options.
2. Friends & family — If your business idea is a sound one and you have a business plan in place, then you can approach other people about funding your enterprise. People you know, including friends and family members, are naturally interested in what you do. If they have the funds available and are willing to support your business, you can draft up an agreement to outline their loan and possible stake in your business. Might you be putting your close relationships on the line? Yes, which is why you want to carefully explore this option. Expect to keep your lender friend apprised of your business dealings, a small price to pay for a loan that could fund your business.
3. Bank loans — An unsecured loan may be difficult to get, but a bank may be willing to extend to you a line of credit to help get your business growing. Your personal credit report needs to be a good one and you should try to deal with a banker who knows you personally. If an unsecured loan is difficult to get, then consider what collateral you have that can be put up for your loan. In the first step we mentioned your house. Other property of valuable might include a car, a retirement account or even personal valuables may suffice. Your banker can discuss with you your options.
4. Government loans — We saved the Small Business Administration as a later example, knowing full well that such loans are not widespread. The SBA does not typically loan directly to small businesses, but they do back bank loans. There are some exceptions including a 7(a) Loan Program for businesses that operate in a rural area and for U.S. exporters with fewer than 20 employees, and for other specific reasons such as owners of daycare centers.
5. Credit cards — Ah, easy credit! Dangerous credit too if you decide to play with fire. Still, credit cards have been used by businesses for years to help businesses fill in the gap. Banks like small businesses as customers given that about 42 percent of owners carry a credit-card balance reports the Wall Street Journal. Keep in mind that interest rates are generally higher for businesses than they are for individuals, and the protections afforded to consumers don’t apply to business cards.
Still need money? You can check with your state or local governments to find out if depleted funding for small businesses has been restored. Fail that, and an angel investor may be able to help. But, be careful here as the devil is certainly in the venture capitalist funding details!