Finding the right small business financing can make all the difference to the success of your business. 2021 almost 62% of small businesses uses personal funds to fill gaps in their company’s cash flow. While this practice is likely to put a heavy strain on the business owner’s personal fortune, obtaining adequate business financing can help.
In this article, we cover why small business financing is important, how to figure out how much financing you need, and your best business financing options.
Why is financing important for small businesses?
There are many reasons why small business financing is essential. Many small business owners and entrepreneurs need money to get their idea off the ground—so they can’t even get started without the right small business loans. Lenders also often require small businesses to conduct market research before offering financing, but even market research requires money.
Adequate business funding is also often the only way to grow your business or develop new products, two fundamental factors of many successful businesses. It may not be possible to grow your business solely with your profits.
Even if you don’t plan to expand your business, the uses for small business finance are virtually endless. Adequate business financing can help you stabilize your cash flow during the down season, increase working capital, meet your financial obligations, or maintain enough inventory to keep up with customer demand.
Is it difficult to get small business funding?
Whether or not getting small business financing is a challenge depends on your company’s qualifications, the type of financing you are applying for, and the amount of credit. The US Small Business Administration (SBA) has a notoriously difficult application process — but online lenders may have more flexible eligibility requirements. Whether you qualify or not depends on the individual funding option.
The other factors that matter are your business details, such as your personal and business credit scores, hours of business, and annual sales. If you need help with your business credit scores, check out Nav’s guide to creating business credit. Other factors include whether or not you have a solid business plan and how much credit you’re asking for.
How can I quickly get financing for my business?
Finding financing options quickly may seem daunting, but there are many options available to you. Typically, online or alternative lenders can provide you with business financing faster than traditional banks. Some great options targeting different business purposes are:
Many online lenders can offer you easy online applications and financing in a day or two.
Note, however, that interest rates on these business financing options can be significantly higher than traditional loans. Be sure to review all terms and payment requirements before agreeing to any credit.
How much financing does my company need?
The amount of small business financing your business needs depends on what you’re using the money for and what you can afford. If you’re looking to start a business, estimate your startup costs — which vary greatly depending on whether you’re opening a brick-and-mortar location, an e-commerce store, or selling services. On the other hand, if you need financing for a specific purpose (e.g. to launch a new product), make sure you don’t borrow too much as you will have to pay interest on every dollar you owe .
Before you take out a loan, it’s a good idea to calculate the cost of debt so you’re sure how much you’ll owe for all of your business debt. Then you will know how much money you can really afford.
Ways to finance a business
There are two main methods of funding a business: borrowing or giving away equity to investors. Here we examine the most common ways to finance a business.
1. Take out a bank loan
Term loans are offered by banks and other financial institutions for a specified amount with monthly repayment obligations. You can find many of the same types of financing that online lenders offer, such as B. Invoice financing and line of credit. Borrowers receive a business-oriented interest rate, with bank loans the interest rates are usually low. However, traditional loan programs can be difficult for new businesses or businesses with bad credit to qualify for.
2. Get online financing
Online lenders may have less stringent requirements for their business applicants, so it may be easier to qualify than at a traditional bank. The application process with this type of lender is often completely digital, so it can be completed from anywhere and only takes a few minutes. Also, they may be able to send you the money within a day or two of approval. But as mentioned, interest rates with an online lender can be higher than a traditional bank loan, so you’ll want to pay them off quickly.
Here are some great offers from our credit marketplace:
3. Apply for an SBA loan
The federal government supports loans from the US Small Business Administration, so interest rates are often among the lowest in the market. The low interest rates make this financing option very popular. However, it can be very difficult to qualify for an SBA loan, so review the qualification requirements in detail before applying.
Also the government supports Innovation research for small businesses (SBIR) and Small Business Technology Transfer (STTR), which offers grants to local small businesses looking to foster innovation.
4. Get a small business grant
There are many small business grant programs out there — and the best part is, you don’t have to pay them back. Small business grants are offered by the government, non-profit organizations, and corporations to help struggling businesses. For information on grants supported by the federal government, see Grants.gov.
The Nav Small Business Grant is a quarterly grant open to all small businesses in the United States. Check our website for the next time applications are open.
5. Use crowdfunding
Crowdfunding is a way to leverage your community and network to raise business funding. Reward-based crowdfunding is the type of crowdfunding most people are familiar with: you donate a certain amount and receive a small fee in return. You might get a product or first access to a launch, but you know in advance what you’ll get for your donation. Donors don’t expect to be repaid for their contributions, so you can avoid paying interest through crowdfunding.
6. Find equity investors
Equity financing is a way to finance small businesses without going into debt. They bring investors into your company in exchange for equity. This type of funding is most commonly used by startups, but it could also be the right option for you. Just remember that in exchange for the investment, you will have to give up some control of your business, so make sure you’re ok with that.
financing of wage costs
Fulfilling payroll is one of the most important responsibilities you have as a small business owner. Your employees rely on you to pay them in full and on time. The good news is that there are several business financing options if you’re short on cash. You can turn to a payroll loan that needs to be used specifically for payroll. Or you can use flexible small business financing options like business loans, merchant cash advances, or even business credit cards to open up cash flow and handle payroll.
Financing a business expansion
Expanding your business can be an exciting prospect, but you need a way to pay for it. Your funding method depends on how you want to expand. For example, if you need to buy real estate for a warehouse or brick and mortar location, you can turn to commercial real estate loans. If you’re planning to increase your inventory after your marketing campaign has brought in a ton of new customers, you might consider an inventory loan. However, many of the same small business financing options are available that can be used to expand.
your next steps
For training and advice on all small business finance matters, go to a Small business development center close to you They offer business programs that help small businesses build and sustain success. And Navi is always there to help. Signing up for a free Nav account gives you instant access to our extensive small business finance marketplace. It’s the easiest way to find the right small business financing for you.
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