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Finance & Accounting, Financial Management, Small Business Loans

10 Funding Options for Small Business Owners

Funding Options for Small Business Owners

Whether you need to stock your shelves, rent a storefront, hire an employee, invest in equipment or handle countless other expenses, you need money to get your business started and to help it thrive. This statement is true for every single small business owner, but the type of funding business owners use varies from situation to situation.

10 Popular Funding Options for Small Business Owners

  1. Savings Accounts

If you have a bank account full of the funds you need to start your business, you are perfectly poised to take off and fly toward success. However, without an inheritance or a huge stroke of luck in their current endeavors, most fledgling entrepreneurs do not have access to ample savings to start a business. As a result, they turn to other types of funding to bolster or replace a savings account.

  1. Bank Loans

Traditionally, small business owners have used bank loans to fund their businesses. Typically granted in the form of installment loans, small business loans feature predictable repayment schedules that are easy to budget around. However, obtaining this type of funding is challenging, and nearly 75 to 80 percent of applicants are denied.

  1. Microloans

Microloan refers to small loans funded by the Small Business Administration and administered through local lenders. Worth up to $50,000, these loans have an average value of $13,000, and in some cases, borrowers receive access to a mentor when they take out a microloan. While easier to access than traditional business loans, microloans still require applicants to have a solid business plan and a positive credit history.

  1. Credit Cards

Business and personal credit cards are both a popular funding option for small business owners. Plastic is easy to use and often easier to obtain than traditional forms of funding. Unfortunately, however, high-interest rates coupled with low minimum payments can make repayment take decades. For this reason, many entrepreneurs are trying to get a bit more creative.

  1. Crowdfunding and Peer Lending

Although slightly different, crowdfunding and peer lending basically take the same format. The business owner creates an online profile, explaining why his business needs funding. Then, peers lend money directly to the business or investors get involved through crowdfunding efforts. The advantage of these types of funding is that they take the pressure off the business owner to have a great credit score. Instead, applicants rely on the strength of their proposals and how well the ideas are received by others.

  1. Presales

In some cases, business who turn to crowdfunding offer sample products to their early investors. This is a form of preselling, and that can be another useful type of small business funding. Whether you use a crowdfunding site or just take pre-sale orders through your own website, preselling puts the revenue in your pocket before the product is made. That gives you the cash you need to get through the production process.

  1. Inventory Loans

In other cases, rather than relying on future inventory to boost their capital, businesses rely on the inventory they have on hand. Inventory loans are designed for retail or wholesale companies. These loans are secured by your inventory, but you can use the funds for whatever you need.

  1. Factoring Loans

Instead of leveraging your inventory, you can leverage your accounts receivables to obtain working capital. If you have a stack of unpaid invoices, you may turn them over to a factoring company. Then, the factoring company gives you a percentage of the invoice value upfront, and it remits the rest of the funds (minus a factoring fee) when the invoices are paid.

  1. Home Equity Line of Credit

In lieu of using their business assets as collateral, some business owners rely on their personal assets, and a home equity line of credit is the perfect example. A HELOC is a line of credit based on the equity in your house. You can spend the funds as needed, pay them back and spend them again, which is incredibly convenient. However, if your business doesn’t work out, this type of funding puts your home at risk.

  1. Business Line of Credit

Finally, a business line of credit is an unsecured, revolving line of credit. It works exactly like a HELOC, but it isn’t secured by your personal assets. Instead, online lenders allow businesses like yours to use the power of data to quickly access the working capital you need to grow. They do the entire process all online within minutes with no forms and no waiting. You can get a line of credit up to $100,000 that’s accessible at any time. To learn how online lenders like Kabbage partner with small business advisors and accountants go to www.kabbage.com/advisor or www.kabbage.com/accountant.