Small Business Financing Options


Small Business Financing Options

If your first thought is obtaining a personal bank loan to finance your small business, you’re not alone. Financing a small new company by getting a personal bank loan can be a very popular option. Unfortunately, securing such a personal loan from a large institution that isn’t well-known can be very challenging. However, there are several options available if you have a good credit score and are ready to apply.

First, we have to look at personal bank loans, which are usually considered the easiest of small business financing options. When considering this option, it’s important to remember that you’ll need to provide security – often equity in the business itself, but you also may need to provide guarantees or interest loans. Either way, you need to provide as much money as possible in order to secure the loan. If you’re unable to secure enough money, the process of how to finance a new business can become quite complicated.

The next option, and probably one of the most popular, are venture capitalist funding. This involves a private investor that believes in the long-term potential of your business. In exchange, he provides you with a loan based upon the value of your business. The problem with venture capitalist loans is that they usually require a significant amount of equity. If you have little or no equity in your small business, this method of small business financing options is usually not a good choice.

The third option is bank loans. These bank loans generally come in two forms: secured and unsecured. Secured bank loans require collateral, such as property, in order to obtain approval. Unsecured small business financing options require no collateral, but the interest rate offered may be a bit higher.

Your last option, and probably the easiest one is to apply for an SBA microloan program. The SBA microloan program is designed for small businesses that do not qualify for traditional loans. By using a typical bank or credit cards, you can receive small business financing options that include low interest rates.

It is important to remember when considering any of these methods of small business financing that the best financing is not necessarily available to all businesses. Depending on the nature of your existing small business, it may make more sense to obtain a loan from a private lender than to approach a venture capitalist. Also, depending on the level of debt you carry, the cost of obtaining a traditional loan may be too high for your particular situation. On the other hand, obtaining a loan from an alternative lender may be possible, depending on your credit and cash flow situations. All in all, however, these financing options should be seriously considered, as they are certainly worth investigating.

The final financing option, and probably the easiest one for a new business owner to get, is to contact a venture capitalist or angel investor. In general terms, investors are wealthy individuals who provide startup capital for new companies. They often have extensive experience in the venture capital industry and will generally be willing to provide you with a line of credit, equity or both, depending on your personal circumstances. An additional benefit for you is that most venture capitalists are well aware of the exact credit requirements for a loan. (In other words, they already know which lenders are willing to advance you the money you need.)

As previously mentioned, there are many different small business financing options available, depending on the type of loan you need and the level of debt you carry. As always, it is critical to carefully review all of your small business financing options before making your final decision. You should also contact a consultant if you are having problems qualifying for one of the financing options mentioned here. While the above is by no means conclusive, it should serve as a solid foundation for your small business financing needs.