Which Business Funding Option is Right for You?
So you've got your business plan. What's next? A great idea and a lot of ambition aren't enough to build a business you also need funding. With this realization comes the fact that, you'll have to make some decisions about where to seek business funding. Are you eligible for any grants, or would you rather go through the small business administration for a look at some small business loans?
Fight decision fatigue. Here are some of your options for funding your business--and how to find out which one is right for you:
Get Business Funding with Working Capital
Working capital is a loan alternative that gives business owners some much-needed liquidity. This money can then be used to pay for expenses like payroll or bills and is an excellent way to reduce debt in the short run.
Lenders base your ability to repay them on your history of cash flow, so you kind of need to be making money to get more. Again, this is a good choice for those who have an established business with some success--but wish to hire more people or fund expansion.
Work with the Small Business Administration
Unfortunately, the big banks see small businesses as a major risk. And it's true, giving your money to a small business versus a large one is less likely to give you a high return on your investment.
It's also worth pointing out that it costs banks the same amount of money to underwrite small loans as it does more massive loans. In short, banks don't benefit much from taking a chance on a smaller business.
That's where the UK Small Business Administration comes in. The organization is focused on helping small companies succeed and takes the vetting process into their own hands.
When you apply for a small business loan, you're actually applying for bank loans. The organization functions as a middleman that determines your creditworthiness. From there, they'll pass that recommendation along to the actual lender.
Going this route may be your best bet if you're seeking out a new location for your business, need to hire a few employees or even refinance an existing loan.
Another benefit of working with the administration is the reduced interest rates. Terms may be more manageable than what you'd get if you do try to go directly through the bank.
Which brings us to:
Or, There's Always Traditional Loans
Though we mentioned that many small businesses wouldn't qualify for a small business loan from a bank, applying may be a good place to start. We're not suggesting you blindly apply for every loan on the planet, but getting a sense of what you qualify for can help you weed out some options.
Even if you don't have a long credit history or enough assets you can use as collateral, it may be worthwhile to have a chat with a lending expert to explore your options and figure out what you need to fund your business.
Traditional bank loans are similar to small business loans. The difference is, there are stricter requirements for a conventional loan than going through the small business administration. You'll need an excellent credit rating, with a track record of doing business.
Banks and third-party lenders, like Merchant Money, are the only places that offer term loans. The latter option will have different requirements for approval, but it's always going to come down to your credit and ability to pay.
For some small businesses, crowdfunding is a good choice--especially if you're still in the early stages of setting up your company.While you won't need to present a credit history to lock down funding, you will need to provide some sort of proof to get micro investors on board.
Take to social media and showcase your personality. Success hinges on your marketability, get friends and family to support your efforts to increase your reach.Platforms like Kickstarter and Seedrs may be good platforms for your campaign.
Despite, the informality of crowdfunding, if you're serious about building a business, be prepared to attract investors with a professional and persuasive presentation. Include financial projections, a marketing plan, and anything else that will strengthen your ask.
Find An Angel Investor
Angel investments may also be a good option, but only if you're somewhat established. Most angels are looking for companies beyond the startup phase, but need capital for things like marketing or development.
Angels invest their own money with the expectation they'll be making it back--so they may have more stringent requirements put in place to protect their investments.
Still Not Sure What Business Funding Option is Right for You?
As you can see, there are countless options out there for funding a business--from the traditional loans to alternative methods like crowdfunding. We recommend you do a bit of research ahead of signing the papers on any funding agreement and review the terms carefully before making a commitment.
If you're considering a flexible, working capital arrangement, we encourage you to head over to our website and get your free quote today. We offer small business loans up to £150,000 and cash advances up to £500,000.
Check it out and see what you qualify for.