Know Your Options: Small Business Financing
Written by Eddy Hood
Financing a small business is often one of the most difficult tasks a small business owner faces. Most business owners consider small business funding options when starting a business, but there are often financing needs that arise even several years after a business has started. It can be tough to decide where to begin when exploring small business financing options, but there are a lot of options available to small business owners. Some of the most popular small business finance options include bank and Small Business Administration loans, home equity loans, selling of assets, the use of investors, crowdfunding, and even presale incentives.
Traditional bank loans and Small Business Administration loans are a great option for companies with a solid history of profit or for individuals with excellent credit. If the company or individual seeking the loan is creditworthy, they may secure a loan with low interest rates. The specific terms of the loan will vary depending upon credit score and the financial institution's lending policies. For those with less-than-excellent credit, a Small Business Administration loan may be a better choice than a traditional bank loan. The Small Business Administration works with small business owners to assist them with securing a loan from a bank that specializes in working with small businesses. These loans are generally easier to secure than traditional loans, as they are backed by the Small Business Administration. After interest rates and loan terms are factored in, this type of small business financing may mean paying more money over time than one might using other methods.
Other options such as home equity loans or selling personal assets can be helpful in small business funding as well. A home equity loan may offer lower interest rates than securing a loan through other avenues, but individuals that pursue this option put their homes on the line. This is often a very risky move for a lot of small business owners, but it is a valid option for some. Selling assets, such as personal cars or real estate property, is another method used for small business finance. This is an excellent option for those who have assets, as it does not hold owners to interest rates or loan terms.
Some business owners use several of the previously mentioned methods of small business financing in combination with other options such as investors, crowdfunding, and presale. Investors and crowd funding both involve pitching business ideas to people and receiving financial support from those who believe in the mission of the company or the individual. Money is generally repaid to investors with interest, while crowdfunding is more of a charitable act. To increase crowdfunding, many small business owners use presale incentives. This act involves selling a product before it is produced or manufactured with the promise of the buyer receiving the product upon completion.
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