In other words… learn your different financial options to fund your small business!
Finance is a difficult topic for many people to discuss. Money is beneficial when you have it but challenging when you don’t. When it comes to starting a business, you need money to push it off the ground. Some will need more than others depending on the business type.
There are many ways to fund small businesses, but small business loans can be tricky. Let’s discuss some different ways that could help fund your new business.
Bootstrapping
Bootstrapping your small business means that you are starting from scratch with little to no cash investment. You are building from the ground up by using your personal savings, alone. This may sound risky and for some this may not be an option at all. The main benefit is that it keeps you out of debt. You only pay for what you can in that moment. However, the success of your business might move at a very slow rate depending on how much money you’re able to put into it.
Crowdfunding
This is an option that involves raising small amounts of money from large groups of people. There are plenty of crowdfunding sites such as Kickstarter or GoFundMe that can easily help you with this method.
In order to receive a business startup loan through crowdfunding, you will need to share a business plan {Check out our previous blog on creating a business plan here!}, objectives, and sometimes further details when asking for donations.
Small Business Grants
This type of grant is a small amount of money that will contribute to the goals of federal, state, or nonprofit organizations. If your service or product benefits other groups, then this could be a great option to fund your small business. Unlike a loan, you don’t have to pay a grant back. Unfortunately, the government doesn’t usually give small businesses grants to start or expand businesses. It will be easier to search for state or local organizations. You can also apply for federal grants once your business is up and running. Check out this resource for grant searching.
Small Business Association (SBA) Loans
SBA is known for their loan programs specifically for new or underserved businesses — specifically small businesses and startups! They offer four types of loans — Lender Match, 7(a) Loans, 504 Loans, Microloans. Some of these loans can be difficult to apply for since they require you to have at least a 680 credit score and offer collateral.
The benefit of these loan programs is that they have low interest rates and long repayment plans. This makes your loan payments significantly lower than typical loans. Startups are generally required to place a 20-30 percent down payment on an SBA loan, making them more suited to partially self-financed startups.
Business Lines of Credit
A business line of credit is similar to a credit card. You can borrow up to a certain amount and then pay interest only on the portion of money that you borrow. This provides more flexibility to fund small businesses than a regular loan. You simply borrow and repay funds as you go. Just be sure not to exceed your credit limit or miss a monthly payment.
Pro-Tip: You can borrow up to a certain amount and then pay interest only on the portion of money that you borrow. This provides more flexibility to fund small businesses than a regular loan. You simply borrow and repay funds as you go. Just be sure not to exceed your credit limit or miss a monthly payment.
If you’re still not sure which direction to go or you know this isn’t your area of expertise, LegalZing is here to help! We’d love to answer any of your questions and help you navigate the best options available to fund your small business.