6 Ways of Financing Your Small Business

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2013

If you’re in need of financing for your small business, there are more options available than you might think. Even if you don’t have the best credit, you might be surprised at the options that are available to you.

Financing a small business can be a wonderful way to expand operations, replace or upgrade equipment, or simply provide yourself with a bit of a safety cushion. It’s potentially very worth doing.

Of course, all options for financing come with tradeoffs. Ultimately, however you come up with the money, you will need to find a way to pay it back. Some tradeoffs, though, are likely to be more favorable than others, depending on what your situation is and what your needs are.

With this in mind, here are 6 ways of financing your small business.

Six Ways of Financing Your Small Business

financing your small business

Option 1: Get a Bank Loan if You Can

Though lending standards have become much stricter than they once were, there are still plenty of banks like J.P. Morgan, Chase, and Bank of America who are looking to lend to small businesses.

You don’t necessarily need a perfect credit score to successfully apply for a bank loan, either – a good one, yes, but not necessarily perfect.

What you should definitely expect is the need for a great deal of documentation. Banks are going to want to know that you are more than capable of paying them back.

Read up on the standards associated with bank loans and find out if this is an option that could be right for you.

Option 2: Use Credit Cards With Caution

Credit cards can get you in trouble if you are not careful. The pitfalls are considerable for those who are not cautious: falling behind on your monthly payments can dent your credit score, while paying the monthly minimum could create a never-ending hole.

The trick is to use credit cards responsibly: only run up costs that you can manage within your cash flow, and a credit card can be a convenient way to ensure you can get out of the occasional jam.

If you need to buy some new piece of very expensive packaging equipment for your business, for example, a credit card may be just the trick.

Option 3: Draw On Your Retirement Accounts

If you have a 401(k), you may benefit from using the funds you’ve saved to finance your small business. It’s important to follow the steps and do this the right way so that you can pull it off without incurring a penalty.

The short version is that the steps have enough legal complexity such that you’ll want someone with the right expertise to help you set up a C corporation and make the transfer of your assets.

The other thing to keep in mind is that this is your nest egg. If things don’t go your way you may be in trouble, but if things go well you’ll be able to make everything back and much more besides.

Option 4: Home Equity

This is actually two different methods of financing: a home equity loan, and a home equity line of credit.

With a home equity loan, you get a loan against the value of your house, which you then pay back over time and with a fixed rate and set number of payments.

With a home equity line of credit, you have something more like a credit card, with a revolving balance.

Both options are worth investigating, but you may want to investigate also any potential ramifications for your credit and finances.

Option 5: Friends, Family, and Angels

Friends and family can be a good source of funding. If you handle this right, you may get generous terms for repayment and be able to offer them a good investment opportunity.

The thing to keep in mind, though, is that you have not only money but also personal relationships at stake. If things go poorly and you lose money that people you love invested in your business, will they be able to understand and be forgiving? Is that a strain you want to risk?

Angel investors are another, possibly safer, option. These are wealthy people who invest in small businesses, and they can generally be found through angel clubs.

Option 6: Get a Bad Credit Business Loan

When all else fails, you may find yourself in a small business loans bad credit situation: you need money to boost your small business, but you don’t have good credit (quite the opposite) and you don’t have much if anything in the way of collateral. Can you still get financing?

The answer is yes, you can. There are numerous online lenders who can help you get financing even with less than optimal credit. This can be a surprisingly good trade-off if you find yourself in that situation.

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Author: Sheldon White

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