When you want to start up your own business, grow your existing business, or commit to a personal project, it can be overwhelming thinking about financing your business or project. There are different options you have for funding your business. However, not all options are the same; some will serve you better than others. Of great importance is to choose a financing option that meets your needs. Below is a list of the most popular business financing options, along with what makes them so attractive and why they might not be as attractive as they seem. Find out which option(s) are right for you, and get your business on track to success!
1. Lines of Credit
Perhaps one of your best business finance options is a line of credit. Lines of credit are revolving loans that allow you to access money as needed (provided you have sufficient collateral), and they don’t typically require as much red tape as other financing options. It’s not uncommon for businesses—especially start-ups—to rely on lines of credit for more than 50 per cent of their funding, although it depends on several factors.
One drawback of lines of credit is that you will pay interest which varies depending on how risky an entity views your business. Also, if there isn’t enough demand for your product or service or too many people use their line at once, lenders may get spooked and cut off all access to funds. However, if appropriately used with careful planning, a line of credit can be a fantastic resource for small-business owners who need flexible funds at times when cash flow is low.
2. Commercial Lending
Commercial loans are suitable for businesses with a solid credit history and an established business model to back up their financial projections. For example, if you own a coffee shop or software company, these types of loans may be suitable for your business. However, if you’re seeking financing for start-up costs or working capital, it’s best to look elsewhere. These loans tend to have relatively low-interest rates and feature long repayment periods (five years is not uncommon).
Commercial lending typically comes from banks, savings, loan institutions, or credit unions. Working Capital Loans: These commercial loans provide money to cover operating expenses in advance of scheduled payments from customers; they are ideal for growing companies needing short-term money while working toward profit margins by collecting on past debts owed.
3. Traditional Banks Business Financing
Traditional banks have been around for ages, and they know a thing or two about lending out money. The process of applying for a loan is usually pretty straightforward: you provide all of your financial details, both business and personal, and your bank will decide whether or not to give you a loan.
Once approved, you’ll sign over ownership of your business assets as collateral until you pay back your debt in full. Sound good? There are benefits to getting a loan from your local bank, but downsides—like high-interest rates and restrictive terms—make traditional financing worth considering if other options aren’t available.
4. Angel Investors
Angel or private investors are high-net-worth individuals (HNWIs) willing to invest their own money in small businesses they believe have great potential. In exchange for providing your company with start-up capital, they’ll ask for a stake in your business; usually, if you want an angel investor, you will have to give up at least 20 per cent of your company. One of the best things about angel investors is that they tend to be more interested in mentoring and facilitating than demanding control or driving strategy.
5. Grants and Loans from Family Members
Asking friends, family members, and acquaintances for financing can be helpful in your business-financing tool belt. Look at these folks as you would any investor: Do they have an interest in what you’re doing, or are they just willing to lend money? Be wary of family members who are just ready to lend. While it might save you some money, there may be strings attached that could come back to haunt you later.
There are plenty of financing options out there, but not all of them make sense for your business or project. Some people like choosing traditional routes while others find it more advantageous to go with alternative financing; what’s best for you? You can contact CreditOne Smarter for business finance and help you decide your best business financing options: debt finance, equity finance, or commercial financing.