Financing Options For Small Businesses and Startups

Financing can be an enormously daunting obstacle for small and startup business owners alike. Finding financing options that meet both your needs and qualify can become a full-time job unto themselves.

Grants offer the lowest cost financing option, since it doesn’t need to be paid back. There are other sources as well, including loans from traditional banks and alternative lenders online.

1. Bank Loans

Bank business loans are borrowed sums of money that a small-business owner receives from financial institutions or lenders in order to cover operating expenses within an agreed upon time period and with fixed repayment terms and collateral (such as real estate or machinery ). They often come with fixed repayment schedules with personal guarantees in case the repayment fails due to non-payment by defaulting borrowers.

Bank business loan criteria tend to be stringent, with most lenders only offering this financing solution to individuals with excellent personal credit, strong finances and at least one year of experience in business. Thankfully, there are also online lenders with more lenient requirements who may provide funding options even to those with less-than-stellar credit ratings.

Revenue-based financing, wherein companies exchange a percentage of future revenues in exchange for upfront capital, is another popular form of startup funding. This strategy works well for companies who can show they already have an established model and significant traction.

2. Crowdfunding

Crowdfunding involves multiple people contributing to an effort, often via online platforms like Kickstarter or Indiegogo, to a specific fundraising goal. It has become increasingly popular as a method for small businesses and startups alike to raise capital.

Launch a campaign on Kickstarter or Indiegogo to raise money for your new product idea; if it falls short of its funding goal, these platforms will return all donor contributions back.

Crowdfunding campaigns also provide backers with incentives based on the amount they contribute, such as preorder of product, free sample or equity stake. Crowdfunding allows you to quickly and easily execute projects unlike business loans which take more time and energy to obtain and manage; but be wary of its risks so as to plan accordingly.

3. Cash Flow Loans

Under this form of financing, lenders focus more on your company’s projected cash flow rather than its past performance; as a result, you may qualify for this type of funding without offering physical collateral such as equipment or real estate as security.

Microlenders may also offer looser eligibility requirements than traditional bank or credit union lending, meaning entrepreneurs with short business histories or low credit scores could find these loans more easily.

However, these lenders tend to charge higher interest rates as compensation for the higher risk. Make sure to compare rates and repayment terms in order to find the most suitable option for you and your business.

4. Line of Credit

Lines of credit provide businesses with flexible financing solutions, offering them access to a set amount of funds on an ongoing basis. Unlike traditional loans which offer lump sum payments upfront and require fixed monthly repayment, lines of credit enable businesses to borrow and repay funds as needed, paying only interest on what they use up.

Line of credit can be an excellent tool to manage cash flow fluctuations and cover short-term expenses, however it is essential that prospective applicants consider all the requirements set by their lender (such as time in business and annual revenue) prior to applying for one.

Many small business lenders offer various qualifications for lines of credit. Be sure to shop around and compare lender options in order to find one that meets your business needs – look for someone comfortable working with startups, young companies and those with poor credit like Lendio has 75+ lenders to help find you just the right line of credit!