It’s no secret that traditional lenders tend to be hostile to small businesses. Things are even worse if you’re in a business with a high failure rate. Small businesses are sadly those who are the most in need of a loan. If you’re a new business and don’t believe you have the history needed to get a loan, know that there are many options out there you can choose from. It’s all about knowing where to look and what to do to be an eligible candidate. Here are a few viable financing options for small businesses.
SBA loans are loans that are backed by the Small Business Administration. We say backed because you will still have to go through an SBA-approved third-party lender.
The requirements are different than with other loans, but a lot of it will rest on your personal credit score. So, this is one is something you should consider if you’re been handling your personal finances responsibly and amassed a respectable history.
If you want to access SBA loans for your business, you also have to be prepared for a long and strenuous process. It will likely take weeks before your application is processed, and you get a response. But if everything is in order and you filled your application correctly, there is a strong chance you’ll be accepted, so we suggest you look into it more in detail.
Invoice factoring is a special type of financing that allows you to borrow money against your accounts receivable. You can borrow money against invoices that are due to you at a later date. The factoring company will take part of that money as a fee and will also collect the invoice themselves.
This is a great option for those who have very poor credit. That’s because your client’s credit, and not yours, will be used to determine if you’re eligible or not. So, if you have a lot of accounts receivable and good clients, this could be an option.
Then you have the option of offering equity in your business in exchange for money. The stake in your business will usually be proportional to the money that will be put up. For instance, if you have a business that is valued at $100,000, you could ask for $10,000 for 10% of the company.
This also means, however, that you’ll be welcoming new owners on board and will have to split your profits from now on. This can be both a good or a bad thing.
If you bring in someone with expertise in areas that you need, you could end up saving money by not having to hire outside help. They might also help make your business more profitable. On the other hand, you could end up bumping heads with them and they could become disruptive. You could also become frustrated by their lack of participation.
There are also cases where you might have to contemplate giving majority control of your company. Again, this is something you’ll need to evaluate yourself about, as they may be better equipped to run a business. Many will also refuse to give the reigns to someone who doesn’t have a formal finance background, so you have to prepare for that.
These are all financing options that you could explore as a small business owner. Look at each one of those in detail and see which one would be the best depending on your situation.