Business owners, especially small businesses and startups often struggle with getting the funding they need to either start a business or expanding the existing. However, there are a plethora of funding options available to business, with formal and informal financing solutions providers offering business owners options to fund their businesses.
One of the major challenges faced by small business owners particularly with the number of options available is the best way to get funding. With each option have its unique features, pros, and cons, it can sometimes be a daunting task for businesses shopping for funding. However, below is a list of available funding options for businesses as well as their features, which could serve as a guide for choosing the most suitable small business funding option or options as the case may be.
Traditional Bank Loans
Banks remain one of the major sources of funding for business and personal uses. However, banks have tightened their lending criteria significantly in the wake of the 2008 financial crisis. It has become even more difficult for small businesses to get bank loans as banks tend to fund companies with strong financials and near-perfect credit scores.
Business Lines of Credit
A business line of credit is a revolving line of capital that can be used to grow the business when in need of cash. While lines of credit are easier to get compared to traditional bank loans, they tend to have high interest rates and companies with poor credit scores having to pay even higher interest rates.
Merchant Cash Advances
Merchant cash advance lenders give small businesses money in exchange for a percentage of their future credit card receipts. These loans are popular with small business owners as they are quick, require little paperwork, and are unsecured, requiring no collateral. However, merchant cash advances can be quite expensive with rates ranging between 60% and 200%.
Loans from the Small Business Administration
The Small Business Administration (SBA) guarantees some loans, issued by banks and other lenders, to small businesses. They often come with low interest rates and long repayment terms. However, business owners should be prepared to put up collateral and wait several weeks before being approved.
Other funding options available to small businesses include crowdfunding, invoice factoring, borrowing from friends and family, business grants, and selling equity.