5 Great Ways to Finance Your Small Business
Sun, 11/11/2012 - 9:02pm | by Guest Contributor
Getting a small business off the ground is never an easy undertaking, but with our current economy continuing to circle the drain, this might be the most difficult time in decades to launch a new business (or keep one afloat). So if you find yourself in the unfortunate situation of trying to secure the funds needed to start up, expand, or simply hold steady, you may be tempted to hit up any port in a storm. This, however, is a terrible idea. There are a lot of good ways to get the funding you need for your small business, but there are just as many bad ones.
If you’re short on capital and you need a boost, here are a few great ways to get the financing you need without selling your stake (or your soul) to do it.
1. Use your own money.
This is a pretty risky way to start a business since you stand to lose everything, but at least you won’t end up in debt with no means of paying should your business fail. And if you succeed, of course, everything comes back to you. Of course, most people don’t have the cash on hand to support the financial needs of a business, so you will likely have to make a trade of some sort (as in, sell your house or take out a second mortgage to start your business).
2. Bank loan.
This is the most common way to secure the funds needed to start a small business, but these days it is no easy task. Since the mortgage lending crisis tanked the economy, lenders have gotten a bit twitchy about handing out loans (especially to anyone considered high risk). However, there are advantages to this type of loan, not the least of which is a low, stable interest rate.
3. Family loan.
Mixing business and family is something that most people like to avoid, but if you believe in your business and your family (or friends) believe in you, then you may be able to get the funding you need without involving banks or other strangers. Just write up an agreement for repayment (including any interest to be paid as well as deadlines for payment) so that all parties are protected. The benefit of this type of loan is that your loved ones are likely to be a bit more lenient with the payment plan. The obvious drawback is the potential to ruin a close relationship, but as long as you repay their kindness, there shouldn’t be any problem.
4. Venture capitalists.
It takes a certain type of business to grab the interest of a venture capitalist (or more likely, a group of them). But if your business is growing in leaps and bounds with no sign of slowing and you’re ready to take it to the next level, then you may be able to secure thousands (or even millions) of dollars to do just that. Of course, they may want a say in how you ramp up your operation, and you will have to pay the loan back with interest (and venture capitalists often seek a swift return on investment), but if your projections are solid, you stand to gain a lot from this line of credit.
5. Government grants.
Depending on who you are and the type of business you’re starting, you could be eligible for government small business grants at the federal, state, or local level. Look on Grants.gov to see if there are any you can apply for or check with your local Chamber of Commerce.