In order for a business to grow, one must first have a capital. There are different ways to find the funding that you need to start a business. Once you are able to establish a solid business plan, seeking the necessary funds and using it the right way is the next step. It’s also important to conduct your research and choose a business you’re passionate about. Although it’s common for most people to use their personal savings to start, ask the help of friends, or apply for credit cards, it may not still be enough or you may not even like the funds to come from those options.
To help you out, we compiled the top 5 business fundings options you didn’t know about or you probably have already heard but didn’t really had the understanding of what they entail.
Small Business Administration (SBA) Loans
Most small businesses started by getting loans from the Small Business Administration (SBA). It’s a common form of small business financing wherein you can borrow up to $5 million in financing. You’ll be able to use it in any purpose business-related such as start-up, acquisition, and expansion costs. The banks are encouraged by SBA to let small businesses loan from them and in return, a 75% to 85% percent of the loan is guaranteed. It’s really a cost-effective means of funding because of the low-interest rates, extended repayment terms and ballooning costs exemption. Any small business owners will find SBA as a great opportunity because of its repayment options at all stages and flexibility in terms of how the loan is used. If you pay affordable monthly payments, you’ll have more money to put back in your business.
The only problem with SBA is that the length of its approval. It usually takes a minimum of six weeks for your loan to be granted and filling out multiple applications and providing requested documents can take forever.
You’re probably not surprised why Credit Cards made it in our list. It’s the easiest option for getting money and funding your business. They’re flexible and you’re not required to justify what you’re going to spend the money on. If you want to keep your ownership and control of the company, as well as meet all the small-scale revolving needs any entrepreneur face, using a credit may be best for you.
Although convenient and fast, credit cards come with a high cost for the capital because their interest rates can be really high. The amount you can get also depends on your credit limit. If this is something you consider using as funds, make sure to evaluate all the other options first.
Home Equity of Lines of Credit (HELOC)
Did you know that you can use the equity in your home as a source of your capital for your venture? Home Equity Lines of Credit (HELOC) is slightly similar to a credit card because it gives you access to a circling balance and you only pay interest on what you use. The interest rates change over time depending on prime. You will be able to qualify if you have equity in your home, has acceptable credit and a means to repay your loan. Compared to other loans, HELOC’s interest rates are significantly lower and more importantly, you can include the interest you pay in your tax deductions. If you ever get a momentary rough patch in cash flow, HELOC offers an affordable option to recover.
Although HELOC is one of the best funding options out there available, there are still risks involved. You might lose your home should you fail to pay your balance on time. It also comes with closing costs, legal fees, loan processing fees, and other hidden costs.
Another way to finance your business is through dealing with venture capitalists. They take equity in your business in exchange for financing. It also resembles mutual funds because they pool money from different investors. If you choose to receive funds from venture capitalists, expect to have them involved in running the business as they typically fund those businesses they’re an expert with.
Not being able to control the business and equity solely is something you first need to consider before getting a venture capital. Make sure you know how much money you really need and what are the things you’re willing to give up for the sake of funding. Once you figure this out, you’ll be able to move forward in gaining capital to expand your business.
An unsecured Loan is an option that provides fast, alternative method of financing that will not require you to put up a collateral in order to qualify. You will be able to loan as much as $150, 000 without putting your personal properties at risk. If you have a great credit history and score, you can qualify for this type of loan. The most common advantages unsecured loans has is the assurance that your personal assets won’t be at risk, you’ll have quick funding, freedom in terms of how you’re going to use the money, and the interest rates are low for the first year.
Unsecured loans, however, may catch you off guard because of the increase in rates after the first year and you may have a hard time paying it back quickly.