It is not uncommon for new businesses to go through a period where their growth is limited by the amount of funding that they can get their hands on. If you are a small business owner and are looking for ways to finance your company the good news is that there are many different ways that you can get your hands on some much needed money. Unfortunately, not all of them will be right for your company. Here are a few things that you need to consider in order to weed out funding sources that may seem like they will help you but may end up leaving you in a worse financial position than you were in before.
Types of financing options available
Once you start looking more closely at the different types of loans and cash sources that are available, you will notice that they all tend to fall in a few basic categories. These are:
• Home refinancing- These are often quite popular with business owners. Some may choose to get much-needed money by refinancing a home
• Crowd funding- There are a number of different websites that allow entrepreneurs to crowd fund. If you are thinking about going this route you need to develop a sales pitch that will be used to attract potential investors from all around the world. Investors are able to give small amounts of money in return for various perks that are outlined in the crowd funding pitch
• Credit Cards- Many business owners will take out a credit card that will be used for business purposes. They vary in terms of interest rates and fees and can be used to purchase supplies or equipment
• Merchant Pay Advances- Companies who allow you to make this kind of financing arrangement will agree to lend you a specific amount of cash. The loan is then repaid using a portion of credit or debit card payments.
• Line of Credit- A line of credit is often an attractive option for many business owners. It works much like a loan but it has more flexible repayment options than some loans might. It also does not cost you anything as long as it is not used or it is paid back completely within a specific time frame
• Conventional Bank Loans- One other option which some business owners choose is to take out a conventional bank loan in order to give them the money they need to grow their business
All of these Options can make it Hard to Choose
With all of these financing options available, it can be difficult for someone to decide what the best route is when it comes to finding extra money. Of course, which type of funding option is best for someone else may not suit your company as well as another option may. Here are some things to consider when looking at any funding source in order to tell what option will work for you and which options you may want to pass up.
• Interest rate- You need to look at the interest rate when evaluating which option is right for you. If an interest rate is too high it may be more difficult for you to pay back and this may cause you further financial problems
• Your own credit rating and history- You need to look at your own credit rating and repayment history. This can affect which kinds of loans you can get and what your repayment terms will be. Generally, individuals who have better histories and ratings will get better loan terms
• The type of business you operate- Some types of funding will not be available depending on the type of business you are running.
• Repayment amounts- You need to look at what the repayment terms are. Keep in mind that if you need to pay your loan back in large chunks this may leave you with even more of a cash flow shortage
• Length of time for repayment- Some funding sources will not allow you to pay the money back over an extended time period or, conversely, may penalize you if you want to pay back more than the stipulated amount at once. See what the repayment terms are in order to tell whether the funding arrangement is right for you
• Type of collateral needed- You need to pay attention to the type of collateral that is needed in order to secure the loan. While it may be appealing to refinance your home you may be in serious trouble if you fail to repay your loan or line of credit
One final thing to consider is that your business situation will change over time. What may be a bad option for you in the early days of your company may end up being the best choice for you at a later date. It is important as a business owner to constantly be reviewing your company’s financial situation and choosing what works best for your needs.