Starting a business from the ground is difficult, and one of the biggest challenges small business owners face when getting started is financing. Even when earning revenue, the ongoing cost of managing, maintaining, and growing a business pushes many to look at the options available.
Luckily for them, there are plenty available, but they’re not always the best for everybody. Some options are more realistic than others depending on your current situation. Let’s take a look at some of the top financing options for small businesses.
Let’s start with the most common option. Business loans allow you to get financing based on the credit and health of your business. However, the importance either will have will depend on the lender.
For instance, you have companies like CBF that will look at other factors, such as the number of sales you have per month. If your business generates more than $25,000 in sales, then you could be eligible for commercial business funding. They work with people in a variety of sectors like IT, manufacturing, and the service industry, and offer loans ranging anywhere from $50,000 to $5,000,000.
These loans are usually the best option if you had the time to establish good credit. They’re also the best option if you want to retain control.
Secured Business Loan
If you don’t have great credit, but you do have significant equity in your building or own assets, then you could use it as collateral for a loan. This is what is referred to as a secured business loan.
You can use all sorts of things as collateral. Inventory is one example. A car dealership, for instance, could put the cars in their inventory up to secure a loan. We suggest you look around and see if you have something of value you could give up. Also, know that you have to deal with the very real possibility of losing it.
Invoice factoring is when you borrow money against invoices that are due to you at a later date. The company will lend you a portion of the money and will collect the rest. The great thing about this part is that your credit score will be largely irrelevant. It’s the credit of the person who has to pay the invoice that will count. So, this is another great option for businesses that didn’t have the time to establish their credit or have a bad history.
Selling equity is another good option and it has its advantages. For one, you won’t have to repay anything. Second, this could actually be a chance to get access to valuable expertise. The downside is that you will have to give up a part of your company, if not the majority. This might be difficult if it holds sentimental value.
But it’s still something you should consider if the offer is right and you’re sure that the majority partner has yours and the business’s best interests in mind.
These are some of the best options available to owners of budding businesses. Before you make your choice, consider speaking with someone who’s been there before and can guide you towards the best decision for you.