When you need cash to leverage a change in your small business or to fuel an expansion, you have several options. Understanding small business funding choices will help you make a practical and beneficial decision for your business.
Crowdfunding: Often Best for Start-Ups
Through crowdfunding, you can raise money through fans and potential customers who like your idea.
While established businesses can use crowdfunding for a sudden influx of cash, it's often not a practical solution because of the work it requires and because it might not raise enough capital. In an article for Inc magazine, entrepreneur Peter Gasca identifies crowdfunding as an excellent tool for bringing new products to market.
Start-up entrepreneurs often can't obtain small business loans and other traditional funding because they lack business credit history and evidence of their abilities to successfully turn a profit. Therefore, crowdfunding becomes an attractive solution when no others exist. However, you'll need a strong platform and network as well as considerable time to plan, launch, and manage the campaign.
Small Business Loans: Ideal for One-Time Purchases What if you need to expand your commercial fleet or invest in new property? Small business loans are ideal for this purpose because they provide you with an up-front, specific amount of money to fund whatever project you've devised.
After you accept the loan, you pay it back (with interest) over a set period of time. You'll have a reliable, fixed monthly payment, so budgeting the repayment won't create any surprise expenses.
Small Business Lines of Credit: Great for Ongoing Costs
When your small business strategy involves several projects where you'll need capital, consider a line of credit.
Business lines of credit are similar to business loans except that they work more like credit cards. You receive a credit limit, and you can borrow money from the line of credit as you need it. If you don't need cash, you don't borrow.
Maybe your small business will need to hire new staff in the near future, upgrade its technology, and start research and development on new products. Each of these expenses are variable depending on multiple factors, so you might not be able to request a small business loan at a fixed dollar amount.
Consider lines of credit when you have unexpected or ongoing expenses. They're not as predictable as loans, but they make sense in the circumstances described above.
SBA Small Business Loans: Ideal for Younger Companies An SBA loan works similarly to other small business loans except that the Small Business Administration guarantees the repayment. This makes the loan less of a risk for the bank, which makes approval more likely. It's a great strategy for younger companies that need cash, but don't have long credit histories.
Specific Loans: Perfect for Critical Growth Specific small business loans, such as equipment loans and fleet loans, provide you with cash for a specific purpose. Commercial real estate loans are another prime example. These types of loans work best when you have a goal that is designed to result in growth for your business.
No matter how you decide to fund your small business, it's important to have a holistic understanding of your finances and a measurable goal in mind. To find out more about how we can help you achieve your dreams as a business owner, learn about our small business banking and lending services.