Small Business Funding Online
Businesses live and die based on their ability to raise capital. You can expand your business, hire new employees, increase your inventory, and increase sales with adequate funding. Without adequate funding, the opposite usually occurs.
What's the good news? If business owners know where to look, they can find a plethora of financing options.
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| Small Business Funding online |
Loans (such as those provided by Lendio) are usually the best option for most businesses, especially if you have good credit. However, in this article, we will look at the top five funding options for small businesses.
We'll go over the advantages and disadvantages of each and assist you in determining the best type of loan or other type of business funding for you. Continue reading to discover the best funding option for your company.
And what if you're brand new to the business world? If you are not yet qualified for better financing options, look into ways to self-finance your business.
Types of Small Business Funding online growth strategies
Small business financing comes in a variety of forms. Your options are as unique as your company, so it's critical that you understand what's available and what works best for your cash flow.
- Term Loans,
- SBA 7(a) Loans,
- Merchant Cash Advance,
- Invoice Factoring,
- Working Capital Loans,
- Line of Credit
Term Loans
One of the most common types of small business loans is the term loan. If you've ever gotten a mortgage or financed a car, you're probably familiar with the concept of a term loan.
Term loans are provided by a lender in the form of a lump sum of capital and are repaid in fixed installments according to a schedule until the principal plus any applicable interest is repaid (and any fees). Repayment terms can range from short (12 months or less) to medium (1-3 years) to long (3+ years).
Term loans are typically secured by a lien on your business assets (the lender's right to seize those assets if you default on the loan) and may require a personal guarantee, which means your personal assets may be liable if your business fails to repay the loan.
One of the advantages of a term loan is that the interest rate, which can be fixed or variable, is usually competitive and lower than that of other types of small business financing.
This is especially true when you consider that you may be repaying the loan over time. The funds can be used in a variety of ways by business owners.
For example, a small business term loan could be used to expand to a new location, replenish inventory, or hire new employees.
SBA 7(a) Loans
The SBA's most popular loan program is the 7(a). While the Small Business Administration partially guarantees the loan, the financing is provided by an SBA-approved lender.
This way, you can borrow between $20,000 and $5 million over a 10-year period. Because of its low interest rate, the SBA's 7(a) loan program is appealing to many small business owners.
If you apply through Funding Circle's lending partners, the interest rate is currently set at Prime + 2.75% (currently 6%).
Payments are made monthly, and there are no penalties for early repayment. To qualify, your company must have been in operation for at least three years.
Use the proceeds for working capital, debt refinancing, large purchases, and other purposes. Find out how to apply for an SBA 7(a) loan through Funding Circle.
Merchant Cash Advance
MCAs (merchant cash advances) are not the same as small business loans. They are, instead, a lump-sum cash advance against your future credit card revenue.
The amount advanced, which can range between $2,500 and $400,000, is determined by the issuer and is based on your average monthly credit card sales. This amount, for example, is between $5,000 and $500,000 through Funding Circle's network of lending partners.
Because the cash advance is repaid as a percentage of your daily credit card revenue, repayment can take anywhere between 90 days and two and a half years.
One of the major risks of MCAs is piling on too many of them, which can completely deplete your cash flow. You should also be aware that interest rates (often expressed as a factor rate) can range from 40 to 350%. Find out how to apply for a merchant cash advance through Funding Circle.
Invoice Factoring
Invoice factoring is more akin to an MCA than a business loan. Invoice factoring works by selling your accounts receivable at a discounted rate to an invoice factoring company (also known as a 'factor') in exchange for two lump-sum payments.
The first payment is an advance (representing the discounted invoices) - an upfront payment of 70-90% of the factored invoices - and the second payment is for the remaining balance (minus any fees) once your customers pay the invoices in full.
The first lump-sum payment is between 85-90% through Funding Circle's network of lending partners. Invoice factoring is ideal for businesses that need to cover inventory costs or upfront expenses but have customers with delayed payment terms.
The advantage of invoice factoring is that your account receivables are converted into cash quickly rather than waiting months for customers to pay. Find out how to apply for invoice factoring through Funding Circle.
Working Capital Loans
A working capital loan is a short-term loan designed to assist a business with its day-to-day operations. It can be used to pay for expenses such as payroll, rent, or debt payments.
A working capital loan is not intended to be used to purchase long-term assets or investments. Funding Circle allows you to apply for a working capital loan and receive a decision in as little as 24 hours.
One of the best aspects of this small business loan is the speed with which it is approved. Find out more about applying with Funding Circle.
Line of Credit
A line of credit is a type of flexible short-term financing. You have a set amount of credit available to you, which you can use as needed.
You do not make payments or pay interest on a business line of credit until you use the funds. A line of credit is ideal for unexpected expenses because it eliminates the need to rely on cash flow when an emergency arises.
For example, having to replace a large piece of equipment or compensating for a seasonal decrease in revenue. A credit line could range from $5,000 to $500,000 or more.
This range is $6,000 to $250,000 when applying through Funding Circle's network of lending partners. You only pay interest on the funds you draw from a line of credit.
However, there may be other fees associated with credit lines, such as monthly maintenance fees, draw fees, and late payment fees. Learn more about applying for a Funding Circle line of credit.
Compare the most effective small-business funding sources.
When it comes to obtaining small business loans and financing, there is no shortage of options. The product that works best for you will be determined by a number of factors.
These range from how you intend to use the funds to how quickly you require the funds and how long you wish to repay the financing. Here's a breakdown of the various Small Business Funding Online available on the market:
|
Type of Loan |
Rapid Access to Funds |
Average Financing
Price |
Length of Term |
Excellent for Small
Businesses |
|
Business term loan |
Typically as few as
five days |
Typically 7%-30%
Fixed or Variable interest rate |
Less than 12 months
to 20 years |
With established
credit and an urgent need for affordable financing. |
|
SBA 7(a) Loan |
Typically more than
60-90 days |
Prime rate +2.25% to
Prime rate+4.75 (Currently 6%-8% interest rate1) |
Up to 10 years |
With excellent
credit, seeking the best rates possible, and able to tolerate a longer
application process. |
|
Merchant Cash
Advance |
As quickly as
minutes |
Typically 1.1-1.5
factor rate4 |
90 days-30 months |
Who are building
their credit and looking for a quick cash injection. |
|
Working Capital Loan |
Less than a week |
Typically 1.1-1.5
factor rate4 |
6 months-5 years |
Who are building
their credit history and need to cover operational costs but do not want to
incur long-term debt. |
|
Line of Credit |
Same-day (in some
cases instantaneously) |
Typically 7-25% APR |
Payments and
interest don’t begin until you draw on the capital. Repayment could be
anywhere between 6-12 months. |
Who wants to keep
funds on hand but needs financing quickly.. |
|
Invoice Factoring |
One to three
business days |
Typically 10-60% APR |
Payment is due when
the invoice is due. |
Who are building
their credit history and seeking to smooth out irregular cash flow. |
What kind of financing should I get?
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| Small Business Funding online |
Depending on their financial needs, business owners can look for small business loans with shorter or longer terms. The best one for you is determined by a number of factors.
You should think about how you'll use the money, how much you'll need, and how much interest you'll pay with each option.
If you're not sure what type of financing option (loan, line of credit, or otherwise) you need, consider speaking with a financial expert (such as your accountant) about your situation.
They'll be able to walk you through your options, assisting you in locating the best small business loans for you and your company.
When you apply for a small business loan through Funding Circle, you will be assigned a dedicated loan specialist who, while not a financial advisor, will walk you through the entire funding process.
Your dedicated loan specialist will be able to walk you through your options and collaborate with you to determine the best option(s) for your company.
Popular Reasons for Financing a Small Business
Personal loans are used by some business owners to fund their ventures, but using dedicated small business loans and financing allows you to keep your personal finances separate from your business endeavors.
With the best small business financing options for their needs, we've helped thousands of established businesses in the United States grow, create new jobs, and stimulate economic growth in their local communities.
Increase your cash flow
Cash flow is frequently cited as one of the most difficult challenges for growing businesses. Obtain small business financing to free up cash for immediate reinvestment in your business. You'll have more financial flexibility and will be able to prioritize expansion rather than worrying about day-to-day expenses.
Purchase New Equipment
Purchasing equipment for a growing business can quickly add up, especially if you want the most advanced models.
It is critical to find the most powerful tools in order to provide the best service possible to your clients. Never underestimate the importance of quality equipment. We can help you find the best small business financing option for the items you require.
Renovate your property.
Renovating your company's facilities can be an expensive endeavor, especially if you're still in the early stages of development.
To succeed and attract talent, you need a clean and modern work environment, so consider this an investment in your company. Get small business term loans or another type of small business financing to cover some or all of the renovation costs.
Hire More Employees
Hiring top talent puts your company ahead of the competition, but it can be difficult for growing businesses to come up with the funds to hire more people.
If you need to add someone to your team but don't have the funds, a small business loan with competitive interest rates could be the solution.
One-time Fees
It's impossible to predict when a variety of one-time costs for your business will arise, and you don't want to miss out on an opportunity because you don't have enough cash on hand. A small business loan or line of credit can help you capitalize on any opportunities that arise.
Expand Your Company
Every small business owner wants to see their company grow, but it sometimes takes a significant initial investment to see any worthwhile returns. Obtain funds that will allow you to invest in your company without sacrificing equity or becoming accountable to shareholders.
In addition to the costs listed above, you can obtain sufficient funding to help you grow by paying for a variety of other important additions.
Financing Options for Small Businesses
- Loans: How to get traditional funding with good credit.
- Grants: Obtaining free money through application
- Crowdfunding: Capitalizing on Public Interest
- Avoiding risky debt or a lengthy application process with personal assets
- Finding angel investors to help your business grow
Loans are best for people with good credit.
- Interest and fees differ depending on the loan and lender.
- Applications are accepted at all times.
- Credit, revenue, and business age requirements must be met.
Many small-business owners confuse the terms "funding" and "loans." However, this is not true (loans are only one of the five types discussed in this article), even though loans have earned a reputation as a reliable, traditional way to fund your business.
After all, you can apply for them at any time, and many different types of businesses are eligible.
Of course, this does not make them the best option for everyone. Personal and business loans work best for small-business owners who have the following resources:
- A favorable personal credit score
- A company that has been in operation for a year or more.
- Revenue that is consistent
These applicants will be given the best business loans or other types of financing available (such as personal loans). This translates into low interest rates (well below 10%) and long repayment terms.
In general, this means you'll be looking at loans like these:
- Term loans provide you with a lump sum up front and then require you to repay the loan plus interest over time. They can be used to cover a variety of large, anticipated expenses.
- SBA loans are term loans backed by the Small Business Administration of the United States. There are several types of SBA loans, but they should all provide you with low interest rates, low down payments, and long terms.
- Lines of credit provide quick access to funds and are ideal for dealing with cash flow issues. With revolving credit, you only pay interest on the money you use, and you have continuous access to funds rather than a lump sum upfront.
- Credit cards are a type of revolving credit. Unlike lines of credit, business credit cards are better suited for small, incidental expenses such as covering a team lunch or purchasing new business cards.
If you don't have good credit, don't give up just yet—you still have options. These loans are best suited for people with poor credit or who do not otherwise meet the requirements for a business loan.
Lenders provide a variety of bad credit business loans, including short-term loans, merchant cash advances, and invoice factoring. However, these types of financing will not provide you with the low interest rates and long terms that make loans so appealing. So think twice before going this route with a bad credit score.
Loans, on the other hand, can be a great way to fund your business if you have a good credit score.
Pros
- Availability at all times
- Short funding cycles
- Significant funding is available.
Cons
- You must meet the requirements of the lender.
- High interest and fees are possible.
Grants are best for small businesses.
- In most cases, there is no cost.
- Applications are accepted only during certain cycles.
- Must meet grant eligibility criteria
Grants provide you with free money-yes, we said free. Isn't that fantastic? Before you get too excited, there are two things you should be aware of:
To begin, everyone wants grants, but only a few get them. There will be a lot of competition.
Second, getting a grant takes time-jumping through all the hoops before receiving funding could take months.
Business grants frequently have lengthy application processes that may include writing essays, creating videos, or taking part in interviews. Add to that the fact that many grants only accept applications for a limited time each year, and you've got yourself a long wait.
Now that we've rained on your grant parade, let's get back to the important stuff. Grants are free funds that you do not have to repay.
Essentially, it is yours to use as long as you follow the terms and conditions of the grant. A grant designated for equipment, for example, cannot be used to purchase real estate.
Furthermore, grants are frequently awarded to underserved groups that have a more difficult time obtaining traditional loans.
Many grants, for example, are available specifically for women-owned, minority-owned, and veteran-owned businesses. To be clear, these grants are only available to members of their designated groups; they are not like loans for women entrepreneurs, which cannot be exclusive due to legal constraints.
Similarly, grants are available for rural businesses, businesses with fewer than five employees, businesses involving animals, and a variety of other specific groups.
Sounds intriguing? Then consider the following resources to assist you in locating the best grant for your company:
- Our guide to veteran grants
- Our guide to women's small-business grants
- Our guide to minority-owned small businesses grants
- Grants.gov is a searchable database of all federally funded grants.
Grants sound fantastic, and you should definitely look into them as a source of funding. However, don't rely solely on grants to fund your business.
Grants are an untrustworthy source of funding due to stiff competition and long wait times. Use them to supplement other sources of income rather than to replace them.
Pros
- There is no need to repay the grant.
- There are no credit requirements.
- There are no typical revenue or other borrower requirements.
Cons
- Inconsistent application cycles
- Tough competition
- Small funding amounts are typically used.
Crowdfunding is ideal for innovative businesses.
- Platform fees differ depending on the crowdfunding platform.
- New campaigns are welcome at any time.
- There are no requirements for many platforms.
When you use crowdfunding, lenders approach you. So, sort of. You'll need to create a great pitch for your product and post it on one of the best crowdfunding sites, and then you'll need to do some work to ensure that people see it.
But, once you've done all of that, the lenders come to you! To get funding for your project, you use the power of public opinion-or, at the very least, the power of public pockets.
Crowdfunding is unique in that it frequently funds projects that traditional lenders would avoid. Furthermore, because people get to see your product before it hits the market, it allows you to get early feedback from your audience.
People generally give money in exchange for tiers of rewards (for example, someone donates $20 to get a t-shirt, $30 to get a t-shirt plus early access, or $1 million to eat dinner with Bono at their preferred wildlife preserve). However, some crowdfunding sites accept only donations or money in exchange for equity.
Crowdfunding works best for product-based businesses or creative individuals with new products to market. So, if you have a new board game or a snack food line that you believe the public would enjoy, consider crowdfunding. (In general, service-based businesses do poorly.)
Having said that, making money through crowdfunding is difficult. Again, you'll need to invest time and money in creating a strong pitch for your project, which usually entails a lot of writing as well as a professional video.
As previously stated, you must devise reasonable incentives to entice people to donate. Then you must do enough marketing to ensure that your campaign is seen among the thousands of others.
Keep in mind that crowdfunding sites have fees that will reduce the amount you receive. Before launching your campaign, do your homework on the exact fees. You may also be required to pay taxes on the funds raised, so make sure you understand the applicable tax code (before spending it all).
Crowdfunding has a huge potential payoff, but don't be fooled into thinking it's easier than other forms of funding. Yes, an emoji Moby Dick translation was funded. But that doesn't mean that everything is funded.
Pros
- There is a low entry barrier.
- proAbility to acquire customers through crowdfunding
- There are no repayment requirements (in most cases)
Cons
- A significant amount of effort is required to run a successful campaign.
- Platform charges
- Only some businesses will benefit from this.
Personal assets are the best way to maintain control.
- Fees differ depending on the asset type.
- Availability at all times
- There are no credit, revenue, or business age restrictions.
According to an infographic from Fundable, the majority of small businesses receive funding from personal savings and credit-58% of startups do so.
We understand that personal assets are less exciting than crowdfunding or angel investors. Still, self-funding your business has a significant advantage: funding your business with your savings and/or retirement accounts (such as a self-directed IRA) saves you from incurring large amounts of risky debt or losing equity.
In other words, you don't have to be concerned about someone else taking over your company or its assets.
Similarly, you won't have to worry about interest rates, APRs, or even credit approval. In the worst-case scenario, you exhaust your savings-but at least you don't owe anyone money.
You'll also save the time and effort required to find funding. It's no surprise that most business owners rely on their personal assets.
Aside from your personal assets, you may be able to find family and friends who are willing to support your business.
Of course, there is some personal risk involved. For example, if your family and friends don't agree with how you spend their money, you might end up at some awkward Thanksgiving dinners-but those closest to you will often take a risk on you when a bank won't.
Whether you self-fund or get help from family, don't feel obligated to spend anyone's life savings to fund your business.
According to Fundable, the average business owner invests $48,000 in their company, but don't worry if you can't. 1 Many businesses, such as these low-cost business ideas, can be started for less than $1,000.
You can always seek outside funding later if you decide to fund your business with personal assets. Who can say? You might even be eligible for our final funding option.
Pros
- There is no repayment.
- There are no borrower requirements.
- There is no loss of control.
Cons
- Accessibility issues for some entrepreneurs
- Lower funding amounts are more common.
- Personal assets are at risk.
Angel investors are ideal for high-risk ventures.
- There are no fees.
- Pitches are accepted at all times.
- Investors' business requirements differ.
Since the success of the television show Shark Tank, everyone wants an investor to help them grow their business. In other words, they are looking for an angel investor.
Angel investors put their own money into your company in exchange for a percentage of the company's stock.
This means there is no loan to repay; instead, your angel investor receives a portion of the company's profits. Angel investors frequently invest in businesses that traditional lenders might consider too risky, and they frequently provide hands-off mentorship rather than demanding a board seat.
Isn't she pretty angelic?
We understand if giving up equity to an angel investor seems difficult. Still, in the early days of your business, when cash flow is scarce, exchanging equity for cash can make a significant difference. There is a reason Shark Tank is so popular.
Debt financing as opposed to equity financing
Loans and lines of credit are examples of debt financing-when someone gives you money and you owe them money until you repay it (usually plus interest). Angel investors (and venture capitalists) are examples of equity financiers. Someone gives you money in exchange for company stock; you owe nothing.
In theory, an angel investor must be an accredited investor. According to the Securities and Exchange Commission, angel investors must have a net worth of more than $1 million or an annual income of more than $200,000 for the previous two years. 2
In practice, you could also consider family and friends who invest in your business to be angel investors.
Do you remember the Fundable infographic? Family and friends are the second most common source of small-business financing. 1 Given that family and friends invest in riskier schemes with favorable terms for you, we believe they, too, qualify as angelic.
However, if you want to find a true angel investor, you can always go to Shark Tank. If appearing on television isn't your thing, you can also pitch to angel investing clubs. Yes, there are entire clubs of angels looking for their next investment.
Oh, and don't mix up angel investors and venture capitalists. Venture capital firms invest more, but in more established businesses, take more equity, and are generally more interested in profit than mentoring.
So, whether they're accredited or just your friends, stick with angel investors.
Pros
- There is no repayment obligation.
- Large investments could be made.
- Your investor's business expertise and guidance
Cons
- Equity and control loss
- Finding investors could take a long time.
- The amount of effort required to find and pitch investors successfully.
We understand, as you do, that funding can make or break your company. Fortunately, with a variety of funding options available to you, you're bound to find one that works for you.
Loans are a convenient and reasonably priced way to obtain funds if you have good credit. Grants and crowdfunding can both provide you with funds that you do not have to repay, but grant applications and crowdfunding campaigns are highly competitive.
Personal assets are the most cost-effective and simple way to fund your business (if you have them). If you don't mind giving up some control, angel investors can help you get debt-free funding.
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