If you are a small business owner, you’ll know that the first and most crucial decision a small business owner makes is how to finance the business venture. Starting a business costs money, and it is imperative that you know where your capital will come from. Deciding on where to get your small business funding may impact your long-term plans and how you run it.
Everything You Need to Know about Small Business Funding
Small businesses also require capital to expand. This money can come from a variety of places. Once you have a solid business plan and a clear outline of how you intend to use your funds, you can seek funding from various sources.
What’s the Best Way to Fund Your Business?
There are basically two ways to fund your small business, aside from personal funding sources: equity and debt. With equity, you are exchanging a portion of ownership in exchange for money. Because the monies are “paid for” through the ownership arrangements, there is usually no responsibility to repay them. The other alternative is to take on debt, which is usually in the form of a small company loan. You don’t have to give up any ownership of your company, unlike with equity, but you must adhere to the conditions of the financial arrangement. You’ll also need to know how you plan to repay the loan and why your company is a good risk for investors. You may have a fantastic idea, but investors will want to learn about the company’s management so they can have faith in the business plan and the people behind it.
How Do I Determine Which Type of Business Funding Is Best for My Small Business?
When deciding on the type of funding to help finance your business, there are two important factors to consider: the product and the lender. Choose a product that provides adequate credit and a repayment structure that reflects how your company operates. Most importantly, apply for business funds that cover the true loan amount you require. If you borrow too much, you may end up paying too much in interest and fees. Borrow too little, and you’ll have to start the process over (and multiple inquiries can hurt your credit score). There are several different types of lenders who can provide you with a business loan, in addition to multiple business funding products that are available. You can, for example, work with a large commercial bank, a community bank in your area, a direct online lender, or a peer-to-peer lender. Each type of lender will have different products and requirements for borrowers. Some lenders place a premium on good credit, while others prioritize annual revenue. Before putting effort into an application, carefully research various business loan providers and their requirements. This will give you insight into which lenders you have the best chances of qualifying with.
Funding Options Available For You
Choosing small business funding can be difficult and time-consuming. Business owners have many financing options available to them, and qualification requirements vary according to the nature of financing chosen. Costs also differ considerably, and no two loans are alike in terms of what will best fit your business. The right option for you will depend on the nature of your business, your desired repayment schedule and what terms you qualify for. There are various business funding options that are available to small business owners and each one has its Pros and Cons.
Types of Small Business Funding
Traditional banks are a good place to start because they can tell you where you stand in terms of qualifying for financing. Banks provide small-business funding in the form of term loans, business lines of credit, equipment loans, and even business credit cards. Bank loans typically have low interest rates and favorable terms, but they can be difficult to obtain. To access bank financing, you’ll most likely need good personal credit, established business revenue, and two or more years in business. Even if your company lacks the necessary track record or collateral assets to qualify for a bank loan, speaking with someone at a traditional bank can help you figure out what application documents you’ll need and what your best options are. Pros:
No need to wait until your company has made enough profit before you can expand your own business.
Strict criteria for eligibility
Interest rates can be higher for newer businesses that don’t have an extensive financial or trading history
Approval can take weeks
Small Business Administration (SBA) Loans
If your business doesn’t meet the stringent screening process of traditional banks, the next and most cost-effective option is to receive funding through the Small Business Administration (SBA) of the United States. A percentage of SBA loans are guaranteed by the federal government. Consequently, institutions are more inclined to approve borrowers who would otherwise be considered risky investments. Small business loans are not made by the Small Business Administration. You’ll need to speak with an SBA-approved lender to apply. You may have to go through a complex process just to obtain approval for this type of funding, just as with standard bank loans. However, if you qualify, your company may be able to borrow up to $5 million. Some SBA loans have repayment terms of up to 30 years, and you may be able to obtain financing with as little as a 10% down payment. You may avail of SBA loans through banks, credit unions, and similar financial institutions. Pros:
Competitive interest rates
Long repayment terms
Lengthy loan approval and processing
Since traditional banks have very strict loaning requirements, people with shaky credit have better chances with online loans. Online nonbank lenders have fewer requirements for approval compared to traditional banks. You can apply for business funding from the comfort of your home or office. Loan amount, terms of payment, interest rates also differ based on the lender and the type of loan you are availing. Another advantage of online loans is the fast access to funding once it is approved. This kind of funding can cover business expenses such as capital, cost of expansion, and purchasing equipment. As expected, these terms come at a higher cost than bank loans. Pros:
Less rigid requirements
Higher interest rates than bank loans
More expensive fees
Cost of funding might not be as easy to understand
Small Business Grants
A small-business grant is a lump sum given to an individual, business, or corporation for a new business or project. It is usually provided by government agencies, nonprofits, or specific businesses and private corporations. Grants are typically given to nonprofits or government agencies that help a government or other community initiative. They do not have to be repaid, but there are usually strict reporting requirements to ensure that the grant recipient is meeting the grant initiative’s goals. Since they do not require repayment, grants are often difficult to come by. To receive a grant, you must first look for and apply for grants that are relevant to your business. Pros:
No need to repay funds
No equity in exchange for investment
Mo monthly payments
May be hard to come by, takes a lot of work to find a grant
May need to hire someone to write proposals and applications
Lots of competition from other applicants
Credit Union Financing
Credit union financing can be availed from cooperatives that offer financial services similar to those of traditional banks. These services are mainly available to their members. Although similar to traditional banks, credit unions don’t have extensive options available to their members. The advantage is that since they’re not publicly traded, they only need to make a profit to sustain their daily operations, they have high interest rates on savings and lower fees on small business funding loans. The downside is that they have significantly fewer physical offices than most banks, which can be a disadvantage for clients who want to transact personally. In addition to SBA loans, credit unions can offer a range of funding options, including lines of credit, traditional term loans and business credit cards. Pros:
Personalized customer service
Lower rates and fees
Quick processing of loans
Less technical capabilities than banks
Fewer locations and ATMs
Crowdfunding services have increased in popularity with the rise of social media platforms. Normally, crowdfunding platforms are used to raise money for anything from new product launches to medical needs. One of its downsides is that it usually takes time to successfully complete a crowdfunding project. You’ll also have to post materials like videos and product photos for information purposes.
Different types of crowdfunding
One way to do crowd-funding is to offer your products on a pre-order basis. The sales from this pre-selling will be used to develop the products. However, for marketing purposes, you may need to spend a good amount of that money you raise to offer incentives and rewards to encourage people to join the crowdfunding project. Also, crowdfunding platforms normally release your money only when you reach your target amount. They also get a percentage of the total revenues. Pros:
Ease of use
Can help build awareness for your brand
Can be difficult to attract donors or investors
Total raised fund subject to fees
You may not be able to raise your target amount
Some entrepreneurs choose to launch their business with just the minimum capital needed, and no additional funding from outside sources. This is called bootstrapping. Business owners who use their own money and the succeeding profits to fund their business are said to be bootstrapping. One of the reasons a business owner chooses to do this is because he desires to keep sole ownership of the company and be able to keep all the profits. This is an ideal set-up, but sometimes it is just not possible. You’ll eventually have to look for additional funding to expand the business. Pros:
Sole ownership of your company
Control over your company’s direction
Keeping the business within the family
Cash flow shortage
Slow growth and expansion
Missing out on top level help
Wealthy business-minded individuals would oftentimes seek promising startups and small businesses to offer funding in exchange for equity or residual ownership. They expect to see a return of investment, and they typically share business know-how and guidance in order to see your business expand. They will scrutinize your business plan and you’ll have to be able to convince them with your pitch deck as to why your company is worth investing in. Pros:
All industries are eligible
No monthly payments
You’ll receive top level help
Opportunities for networking
Need to have the right connections
Requires option to convert debt to equity
Angel investor guidance and support may be limited
Founder control is reduced
Expectation of rapid growth
Venture capital works very much like angel investors. The venture capitalist will offer funding in exchange for your company shares. Venture capitalists usually pool funds from several investors who are interested in growing their money. They are knowledgeable in the business sectors they wish to invest in, and will normally take an active part in the company’s daily operations. This means giving up some control and equity in your business in exchange for significant funding for your business. Consider how much money you’ll need and what you’ll be ready to give up in exchange. This will assist you in determining the best course of action for getting finance to build your firm. Pros:
Large amount of capital
No monthly payments
Help in risk management
Ownership of the company is reduced
Search for investors can distract owner from attending to business
Funding can be difficult to obtain
Requires comprehensive due diligence
Business Line Credit
A business line of credit works similarly to a credit card. You can borrow up to a set amount and pay interest only on the money you borrow. The monies are then repaid, and you can keep drawing on the line as long as you do not exceed your credit limit. A business line of credit is a more flexible kind of financing than a standard small-business loan, which involves receiving a flat sum of capital and repaying it over a certain period of time, plus interest. Business lines of credit can be utilized for a range of short-term requirements, including cash flow management, inventory purchases, and payroll coverage. Pros:
Ready cash during the slow season
Pay interest only on the amount you use
Helps build your credit history
Fees can quickly add up if not paid
Relatively low borrowing amount
For business owners that require funding while waiting for customer payments, invoice factoring loans are an excellent choice. In contrast to a company loan, invoice factoring allows you to enhance your cash flow by using money that is already due to you by clients. Your company sells its unpaid bills to a third party through invoice factoring. In exchange for those bills, the third party—a factoring company—gives you a percentage of the money upfront. The system then gathers payments from your clients and returns the leftover balance to you, minus a percentage known as a factor charge. When it comes to this sort of financing, the creditworthiness of your consumers is more important than the creditworthiness of your company. So, even if you have low credit or no credit history, you might be able to qualify. However, as with other atypical business funding methods, the cost of borrowing with invoice factoring can be considerable. Pros:
Immediate cash flow, less strict screening
Not necessarily just a one-time option
Outsourcing of invoices means less work on your part
No collateral needed
Fees can be high
You can be liable for unpaid invoices
Depends on customers’ payment history for approval
A term loan gives a borrower a lump sum payment up front, which is then repaid in monthly installments over a predetermined period of time, commonly known as the loan term. Term loan interest rates can be fixed or variable, and they can start as low as 6%. A term loan is a type of short-term small business funding option that can be used to buy various assets. Term loans allow small firms to spread the expenses of critical assets over time, but they can be difficult to obtain and come with the risk of losing the property if the debt isn’t paid back. Pros:
Affordable monthly payment
Potential for added income
Less strict credit requirements
Qualification process can be difficult
Often requires a collateral
Possibility of prepayment penalties
Merchant Cash Advance
Another legal option for receiving small business funding is the merchant cash advance (MCA). This is a great alternative for small businesses instead of applying for bank loans, especially if you have a low credit score. This type of cash advance entitles you to a large amount of money. This will be returned with an additional percentage of your sales. If your business urgently needs cash, and has a large amount of credit card sales, yet doesn’t qualify for standard loans then the merchant cash advance is your best option. Because it is the fastest way to get the funds you need when you need them, you can expect that it charges high fees. So it’s not a good idea to get used to availing a merchant cash advance. It’s just an option that comes in handy during emergency situations. Pros:
Flexible payment terms
No collateral needed
Daily required payments
For a business with credit card payments only
Loan from Family and Friends
If your funding needs are modest, you may wish to look into less conventional options first. In exchange for setting up a loan model similar to some of the more formal methods, family and friends who believe in your business can give beneficial and easy repayment conditions. You may, for example, sell them equity in your firm or repay them in the same way as you would a debt financing transaction, in which you make regular interest-bearing payments. Pros:
Terms are more flexible
May lend without interest, or at a very low rate
May agree to a longer payment period or lower return on investment
Less likely to require a detailed business plan
Any misunderstanding can damage relationships
May demand their money back
May want more involvement in your business
What Do I Need To Do To Get Business Funding?
Now that you know all your options to get much needed funding for your business, your next step is to prepare the necessary requirements for the application procedure. You have to understand that every debit and credit option and every lender has differences, different terms and different offers. There is no one guaranteed formula that can assure a business of sure access to capital. It all boils down to how you can convince the lender of your capacity to adhere to the terms of the repayment. Thus, you still have several ways to make sure you earn your lender’s trust and have better funding options.
Make Your Business Plan More Concrete
Some lenders demand that applicants submit a business plan. Even if they don’t, having one ready shows your organization, leadership, and foresight. It also gives context to the precise amounts you’re asking for.
Set Your Books in Order
Make sure your balance sheets, cash flow statements, income and loss statements, and any other operational documentation are in order. Your financial accounts and accounting records are generally scrutinized by lenders. They may question your financial management if there is any contradicting information or discrepancy.
Examine Your Web Presence
Today, lending companies often use social media as a means to check on your reputation. Your reputation is not built on your actions, but influenced by the way people interpret them. Many lenders will often do a background check on your company, including reviews left by clients and customers, and consider this in considering your loan application. Make sure you attend to client feedback and respond to anything that requires a solution, or something that may become a potential problem.
Do Your Homework
You’ll want to find the proper lender and product to match your small business funding needs because not all loans are created equal. Do your research and compare products, list down the pros and cons, and decide which is best suited to your needs.
How do I fund a business with no money?
If you need money to start a business, you’ll probably have trouble getting standard funding, such as a term loan or a line of credit. What you can do is to seek startup finance from different sources such as friends and family, do crowdfunding, or look for small-business grants or angel investors.
How do I qualify for a business loan?
The criteria for eligibility for each lender are different, but they almost always consider income or cash flow, length of time in business, industry, and/or credit scores. If one of these factors is lacking, the others should compensate. Certain types of funding, meanwhile, necessitate special prerequisites. With bad credit, for example, getting a bank or SBA loan is extremely difficult. However, if your company’s revenue is substantial, you might be able to acquire a business cash loan even if you have bad credit.
What is the most common form of financing for a small business?
According to the 2021 Federal Reserve’s Small Business Credit Survey, loans or lines of credit are the most popular kind of small business financing, followed by credit cards. Next in line are merchant cash advances, trade credit, leasing, equity investment, factoring, and a category labeled “other” is the most prevalent.
How can I get my small business funded?
It depends on where your company is in its development. Consider self-funding your firm or looking at startup business loans if you’re just getting started. You have more possibilities, such as SBA funding and other types of business loans, if you have been in business for at least a year and have stable personal and corporate finances.
How long must I have been in business to be eligible for funding?
You don’t need to have been in business for a certain amount of time to qualify for small business funding or a loan. There are options available for new businesses to established companies. What you should know is that the length of time you’ve been in business will dictate which loans you qualify for. As part of their standard procedure, lenders will normally scrutinize your business history if you’ve been in business for at least a couple of years. This isn’t surprising because you’d do pretty much the same thing if someone asked you to lend them money. If your company is newer and has little or no history, then lenders will take a look at other variables such as your personal credit history.
How do I get a business loan?
Let’s take a look at your two options – loaning from a bank, and loaning from Booster Financial. If you decide to go the traditional route and apply for a bank loan, you’d need to prepare a ton of requirements. These include business tax returns, articles of incorporation, business licenses, etc. You’ll then go from bank to bank, armed with this boatload of papers, looking for the best small business loan for your specific needs. But here’s the catch – you have a 75% chance of getting your loan application denied by a bank. Plus, applying for a bank loan costs money and the entire procedure could take more than a day to complete. With our financing programs, however, business owners have maximum limits determined based on their cash flow and they have access to more funds even before their existing positions are fully paid off. Whether you are looking for a larger dollar amount, longer terms or looking to consolidate, Booster Financial is happy to discuss which financing options are best for you. Feel free to call us for further details, or continue reading to find out more about how our financing products can help your business.
Is it hard to get a business loan?
It is challenging to qualify for a business loan, but not as hard as you think. If you know where to search, most businesses can secure the small business funding they need. With financial and lending institutions going digital, it is now so much easier to seek the assistance that business owners need to secure funding. Companies who are concerned with poor credit or short tenure can still get the funding they need thanks to the numerous options that are now readily available.
What can I expect from Booster Financial?
Seeking assistance from an online marketplace like ours not only improves your chances of qualifying and actually getting your loan approved, but also allows you to compare several loan possibilities and pick the best one for your company. Your chances for success in securing a loan with us is definitely higher than if you were to look for funding on your own.
What loan types are available?
You can check out our LOAN TYPES section to see all the loans we offer, together with the loan amount, interest rate, speed of funding and repayment terms. You can even check if you qualify for a particular loan type. There are small business loans, commercial financing loans, and other resources available for you. You only need to answer a few basic questions about your business to see all your financing options in minutes.
How long do I have to wait for my loan approval?
You can get your loan approved in as early as 1 to 2 days. Yes, it’s that fast!
How much can I loan from NYTG?
Anywhere from $3,000 to $125,000 or more.
What are the minimum requirements to qualify for a loan from NYTG?
Accessing funding for your business is now easier than ever. With minimal paperwork and documentation, you only need the following in order to apply:
3+ months in business
$110k+ annual revenue
550+ credit score
Understand Your Options
Find out more about the different finance opportunities available in your area and get funded today!