Insufficient finances are one of the biggest hurdles that come in the way of entrepreneurs. Even though some people invest a lot of capital, but as the business progresses, they need more funds. It could be for asset financing, expansion, or for developing a new product.
Honestly, owners try their best possible to escape themselves from drowning into loans because making interest payments is not a child’s play. However, if your business is progressing at a fast pace, then external financing could be the best option. Alongside traditional loans, you have many other options available too. Hence, see how much money you need and for what purpose; to select the best source of finance.
Here are 5 different ways to finance your business, helping you make the best decision.
- Traditional Business Loans
Business loans from banks are every business’s first go-to option. After all, they are offering the best interest rates and feasible repayments. You just have to fill an application with some other paperwork to qualify for the loan. You might have to give collateral as a security to the loan, most banks ask for it. Bank loans don’t get approval overnight; you have to wait for some days to acquire the loan.
Do you know what the best part is? You can use this money for anything; it could be for funding your expenses, making your cash flow positive, or purchasing equipment. The bank won’t restrict you on how to spend the money from a loan. However, they would only give loans after analyzing your business potential and credit score. After all, they have the right to judge whether a business is capable of making repayments or not.
Besides, if you have a good name in the market, banks would be willing to offer lower interest rates. However, if you don’t have a presentable credit score, then you have the option to go for High-Risk Business Loans rates. These loans offer high-interest rates, and you can only go for it if the future projections of your business are giving a green signal.
Sometimes, businesses need finance, but not high enough to acquire a loan. Well, this is the time when credit cards can come to your rescue. You can pay for daily expenses or make early payments to suppliers to bag some discounts. There is an option to set a limit on the credit card, so you don’t end up overspending. However, make sure you are using your business credit card for financing rather than a personal one.
At the same time, don’t unnecessarily swipe your credit card, exceeding the limit, or else you would end up paying high-interest rates. Only use it when there is a need because you have to foot credit card bills at the end of the month. Besides, your credit card payments would also have an impact on credit score, an ideal chance to boost it.
- Savings & Friends and Family
Every business can dig into their general reserves or savings before getting their hands dirty on loan. Rather than making repayments to banks, you can deposit it in the business savings account. It saves you from interest payments, reducing business expenses. In the case of no savings, do not hesitate to ask your friends and family members for funding. However, do not use your emotional attachment to get funds; instead, make them believe that you would payback. Show them your financial statements and other evidence to give assurance of their money.
Angel investment has become popular in the past days. Some wealthy angels are looking forward to investing in a business. It does not work like as a loan, nor you have to make repayments. Angels would bring finances into the business in return for a small share of ownership. Alongside bringing finances, they also bring expertise and guidance due to their years of experience in this industry.
Well, winning an angel investor could be challenging. You have to tell your vision for the business and how you aim to achieve it. They only invest if they see some potential in your business. Hence, if you do not mind giving out a small percentage of ownership in your business, then angel investment is the best financing option.
Many financial institutions are offering credit lines to businesses. It allows businesses to borrow as much money as the credit line permits or less. If you are skeptical about how much money you would need, then the credit line could be the best choice. Besides, you have to decide for how long you want to keep the credit line open and when to close it. This is decided after a mutual agreement with banks.
For instance – the credit line allows borrowing of $500, but you only need $300. So, you would also withdraw $300. Unlike other options, with credit lines, you only have to pay interest on the amount you borrowed. It gives the advantage to businesses, helping them avoid unnecessary interest payments. At the same time, you make repayments and borrow again, if the line of credit is open.
Surprisingly, there are countless ways to finance a business, but hunting down a source that is in the interests of your business is quite challenging. After all, analyzing the position of your business is very important. You can look above to see different ways to finance your business and choose the one that gives you the most out of it.