JoshEvery year, one out of every five businesses in the US fail within the first year of their operation, and a lack of funding plays a major part in that. If you want your small business to thrive, you need to make sure you have enough funding to run your operations effectively.
While there are plenty of business financing options available in the US, let’s explore the most popular funding solutions your business may be eligible for.
Cash advance
Cash advances provide businesses with the required capital, which needs to be paid back to the lender at a specified percentage of the business’s daily future sales. Technically, this is not considered a loan. One of the major advantages of a capital cash advance is that it allows your business to use the funding for almost any business expense.
Also, you do not need to go through a long approval process. If you need immediate cash, this is the best option out there. However, cash advances often come with higher fees than other forms of financing.
Traditional bank loans
If you are looking for a more affordable option, business loans from traditional financial institutions such as banks and credit unions may be a good option to consider. You can apply for different bank financing options, including business lines of credit, term loans, commercial real estate loans, equipment loans, etc., based on your funding needs.
However, while these options come with lower interest rates, they can be hard to qualify for. You often require strong personal credit, two or more years in operation, and established business revenue to access certain bank loans.
SBA loans
This affordable business financing option is backed by the U.S. Small Business Administration (SBA). In such loans, the federal government guarantees a significant portion of the loan. The SBA itself does not issue the loan. Businesses need to contact an SBA-approved lender to apply for this type of loan.
Similar to traditional bank loans, you may also need to go through several procedures to qualify for this loan option. Once qualified, your business may get to borrow up to $5 million. While you get the loan at competitive interest rates, the qualification criteria can be strict.
Business lines of credit
If you are looking for a flexible way to borrow money for your business on an as-needed basis, a business line of credit is the ideal option for you. This is particularly useful when you do not know the exact amount of funding your business requires for a project upfront or when you are searching for a standing source of capital.
Like most credit cards, this funding option lets you borrow money up to the credit limit on your account. You can access the credit line several times as long as you repay the funds you borrowed the last time. However, the interest rates can be significantly higher than traditional bank loans.
Small business grants
Small business grants seem appealing to most businesses as you do not need to repay them, which means you do not need to worry about the monthly payments. You also do not need to give up a portion of your company equity to secure the funds. This is essentially free money.
However, the chances of securing this fund are slim as you are likely to face steep competition while applying for it. You also need to fill out several applications, which can be quite exhausting. However, if your business can qualify for it, you won’t have to think about the repayments.
Crowdfunding
Small businesses can also raise cash to fulfill their business goals through the Internet. There are several online platforms where you can apply for crowdfunding. These platforms allow businesses to pool small investments from several individuals. You can choose from a number of crowdfunding options based on your funding needs.
- Debt crowdfunding: In this funding option, you need to repay the entire amount.
- Equity Crowdfunding: Here, you need to seek investors and share equity of your business for funding.
- Reward crowdfunding: In this option, you need to reward the donors at some point.
- Donation-based crowdfunding: This funding option is similar to a donation that you do not need to repay.
You can find dedicated platforms for all these crowdfunding options. Do check them out before you make your decision.
Conclusion
Besides these six financing options, you may come across several other ways to secure capital for your business. Needless to say, each one of these options comes with a fair share of pros and cons. So, take the time to review these options properly and determine whether your business qualifies for them or not.