20 financing options for small businesses
If you’re like most small business owners, you’re always on the lookout for new small business financing options. In this article, we’ll explore 20 different financing options for small businesses, such as traditional bank loans. Whether you’re just starting out or looking for something new, read on to find the perfect financing option for your small business.
What is business financing?
Business financing is the process of obtaining financing for business-related costs. This can include short and long term loans, as well as equity financing. A business owner will often seek financing to cover the cost of start-up expenses, expand their business, or cover the cost of unexpected expenses. Business financing repayment terms may vary by loan type and lender. However, repayment terms generally range from one to five years.
Three Main Types of Financing for Businesses
In the business world, three types of financing are available:
- Debt financing. This is the most common type of small business financing. This includes taking out a loan, which must be repaid in monthly installments with interest.
- Equity financing. This business financing option occurs when a business owner sells part of their business in exchange for financing. The investor will then own a percentage of the business and be entitled to a portion of the profits.
- Mezzanine financing. This type of business financing is a combination of debt and equity financing. In this case, the lender will receive a portion of the business in addition to the interest payments on the loan.
20 best financing options for small businesses
Every business needs financing at some point to start, grow or maintain operations. To help you make the best decision for your business, we’ve compiled a list of 20 different financing options, including getting a business loan from a traditional financial institution and SBA loan programs.
1. Business credit cards
Business credit cards can be used to fund a variety of business-related costs, such as office supplies, travel, and marketing expenses. You can get up to $25,000, but your personal credit score will be taken into account.
2. Cash Advances to Merchants
A merchant cash advance is a type of short-term financing that is repaid by a portion of your daily credit card sales. A small business owner can receive an advance of up to $250,000, which must be repaid within 12 months.
3. Online loans
If you are looking to borrow money from online lenders, you can get up to $500,000. The repayment terms and interest rates on these small business loans vary by lender.
4. Traditional bank loan
Bank loans are a good option for businesses that have a strong credit history and can offer collateral to secure the loan. Traditional lenders like banks offer lines of credit and business loans of $250,000 or more.
Crowdfunding is an alternative funding option available to business owners. In this type of fundraising, companies solicit donations from the general public in exchange for shares or rewards.
6. Small Business Grants
If you have a business with bad credit, you have several options. One such option is the Small Business Development Center (SBDC), which helps you find grants and other funding opportunities.
7. Invoice financing
Invoice financing is short-term financing that allows businesses to borrow against unpaid invoices. This can be a good option for businesses that are waiting for payments from customers.
8. Small Business Administration (SBA) Loans
SBA loans are a type of business financing provided by the federal government. These loans are available to businesses that meet the SBA’s eligibility criteria. Three loan programs available through the SBA include:
SBA loan program (7A)
These loans are often used for working capital, the purchase of equipment or real estate. Most 7(a) loans offer a loan maximum of $5 million, however, loans for equipment and real estate can extend up to a repayment term of 25 years.
SBA 504 Loan Program
This SBA loan program provides small businesses with fixed-rate, long-term financing of up to $5 million that can be used to acquire capital assets for modernization or expansion.
SBA Express Loan Program
These are loans of up to $500,000 with faster approvals. These loans can be used for working capital and for the same purposes as 7(a) loans.
Microloans can reach $50,000 and can be used for working capital, inventory, or equipment. These loans have a shorter repayment term than traditional loans.
10. Term Loans
These loans are typically used for the purchase of equipment or to finance business expansion, can be secured or unsecured, and have repayment periods of up to 25 years.
11. Angel Investors
Small business owners can also seek funding from angel investors. It is usually wealthy individuals who invest in companies in exchange for equity.
12. Venture capital companies
Venture capitalist are companies that also invest in companies in exchange for equity. These companies tend to invest in companies with high growth potential.
13. SBA Economic Disaster Loans (EIDL)
Although these loans are no longer available for reasons related to COVID-19, affected businesses can still apply for government assistance under certain conditions.
14. Credit Unions
Credit unions are another financing option available to business owners. They generally offer lower interest rates than banks and other traditional lenders.
15. Equity financing
Equity financing occurs when companies sell a portion of their equity in exchange for financing. This can be a good option for businesses that don’t have the collateral to get a loan or have a strong credit history.
16. Trade Credit
Trade credit is when companies extend terms to their suppliers in order to pay for goods or services over time. It can be a good option for companies that need to save money.
17. Cash Loans
Cash loans are loans granted based on a company’s cash flow forecast. These loans can be up to $100,000 and can be used as working capital or to finance the purchase of inventory.
18. Commercial real estate loans
These loans are used to finance the purchase or renovation of commercial real estate, such as offices or shops. These loans generally have a repayment period of up to 25 years.
19. Business line of credit
Lines of credit are loans that can be used as needed and repaid over time. This can be a good option for companies that need flexibility in their financing.
20. Equipment financing
Equipment financing is a type of loan used to finance the purchase of equipment. These loans usually have a repayment period of up to 10 years.
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