Acquiring funding for your business is a key step in becoming successful. Look into the various options you have, and select the one that best fits your business structure and the goals of your company.
Types of Loans Available
Commercial bank loans don’t require entrepreneurs to turn over equity or company control.
In general, banks prefer to make loans of more than $10,000. Banks like to see:
- Good credit
- A solid business plan
- Ability to repay the loan
Line of credit is an arrangement in which a bank extends a specified amount of credit to a specified borrower for a specified time period. A line of credit is best suited to help cover expenses that tend to fluctuate throughout the course of a year.
Home equity loans are a cost-effective alternative to other types of loans because they offer good interest rates available. But you may not want to risk your family home to launch your business venture.
Equipment lease financing gives you access to many types of equipment – computers, copiers, fax machines, cars and trucks – without tying up your cash or credit lines. Although it doesn’t bring in cash, leasing reduces the amount of cash you otherwise have to raise to start.
Cash advances from credit cards are an easy and quick way to gain access to cash. But as a long-term financing method, they can be expensive – credit card interest rates typically run much more than you would likely pay on a bank loan.
Factoring allows a company to “sell” its accounts receivables to an outside company at a discounted rate. This allows the company to receive funds immediately to fund operations and ease cash flow. Factoring is done by private companies.
The SBA provides a summary of their loan products.
Types of Funding Available
Friends and Family Funding is funding stage is focused on the personal resources you, your family, and your friends can pull together. Examples would be personal savings, home equity loans, and/or borrowing against your insurance policy.
SBA Loans provide entrepreneurs with many options. This form of loan, by reducing the risk for lenders, gives small businesses better access to capital. To learn more about the requirements for a SBA loan and the options available to you, from them, check out this article.
Angel and VC Investment Groups generally, are investors who will trade you (your business) a dollar amount for ownership in the company.
Technology Grants fund research and development efforts for high risk venture. Often, to qualify for this type of funding, your company must yield high commercial potential.