The range of small business funding options includes traditional business terms loans and much more. Bank term loans have traditionally been a popular form of business finance. Although they include regular repayments over the life of the loan, they do have shortcomings. First, they are secured loans, so they require collateral in the form of residential or commercial property. In addition, a large amount of paperwork is required and the time for approval can take up to two months. Sometimes, particularly for a new business, a business plan will need to be created and submitted.
Non-bank and fintech lenders for small business funding
While banks offer traditional term loans and commercial loans, non-bank lenders are filling the void to assist small businesses. Some options include:
- Business lines of credit
- Business overdrafts
- Equipment finance
- Invoice finance
- Merchant cash advance
- Unsecured business loans.
Fintech lenders, such as Moula, use leading-edge technology to make it easy to apply for small business funding online. This new breed of non-bank lenders has filled the gap where banks have not been able to serve small to medium enterprises. Find out how fintech lenders are assisting with small business funding.
Bootstrappping means beginning with very little capital and investing all profits back into the business. If you are a business owner and are finding it too difficult to access business funding, bootstrapping might be the best option. Find out more in 10 Tips for Bootstrapping Your Business.
Loans from family and friends
For new businesses, family and friends are the first stop in the search for small business funding. One point of advice if getting loans from family and friends is to keep it professional. This means having a written agreement with the terms and conditions of the loan. Learn more about this option in The Upside and Downside of Getting Business Loans from Family and Friends.
Angel investors for small business funding
Angel investors offer funding in return for an equity stake in a business. In addition, angel investors are experienced in running businesses so act as mentors and advisors as well as investors. Get full details in What Are Angel Investors?
Venture capital (VC) is business funding provided to start-ups and small-to-medium enterprises that are viewed as having high growth potential exceed that of most businesses. Venture capital investors are usually people with high net worth, venture capital firms, investment banks or a range of other financial institutions. For taking the risk of investing in early-stage companies, they expect a high return. This return on investment is achieved by a private sale of the business, merging with another business or going public through an initial public offering (IPO). Find out more in What Is Venture Capital?
Crowdfunding is where you raise funds online through a crowdfunding platform. Crowdfunding is simply a way to get business funding for a venture or project by accepting small investments from many people. In return, investors get for one of your products when you have produced it. Crowdfunding is popular with artists and entrepreneurs who want to get funding for a new product or idea they are introducing into the market. For more information, go to Crowdfunding as An Alternative to Business Loans.
Government grants and loans
A range of state and federal government grants and loans are available. Grants are typically for specific goals such as business growth, expanding into new markets and improving health and safety. Interest-free or low-interest loans are available to help with disaster relief, such as drought relief for farmers. In addition to grants and loans, assistance programs including education and mentoring for business owners. For more information, read A Short Guide to Government Grants for Small Business.