There are times when a business needs a bit extra. Especially post-COVID-19, wherein businesses, be they big or small, are reeling from an economic shock that has left the community devastated in its wake. You might be thinking of getting it financed but the government is one step ahead and has actually lent banks money to make sure small businesses and establishments stay afloat in these times. So now that you know that the government and the banks have ample resources to help you out, which are the best financing options for a business? Which path should you take in order to rejuvenate your business?
Fortunately, in these times of need, the money earmarked for such needs consists of a big pool and options are plentiful. From an old-fashioned business loan to one of the newer schemes and program that the government has chalked out for the business sector, which one should you utilize? Each has its own set of pros and cons and each can affect the amount and your subsequent earnings individually. So, without further ado, let’s get into the best financing options for a business.
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Best Financing Options for a Business
The majority of these options are handled and managed by banks, but you can also get financing for your business from individuals or companies looking to invest in a nascent start-up. While banks usually require you to pay a dividend, the latter options also include board memberships or takeover of your company. On we go,
Conventional bank loan
Among the best financing options for a business is a conventional bank loan, one that is offered at the lowest rates of interest. And since everything else is really far-fetched and has plenty of clauses and whatnot, why not turn towards the ol’ reliable?
With most businesses looking for financing options, banks are the primary lenders through their loans, be it interest free or with a specific percentage. Businesses that have their checking or savings accounts in a certain bank can also apply for a loan with reduced interest rates. Needless to say, banks can and should be the number one lender and your first priority should be a conventional bank loan with reduced or zero interest rates.
Another great place to get financing for your business is the Small Business Administration (SBA), which provides state-backed funds for business owners. There plans are business-centric and are designed to match the needs of a business owner. Aside from its very lax regulations, it has four types of loans that can be granted to business owners,
- SBA 7(a) Loans:
The most popular ones out of the lot. These type of SBA loans guarantee the lowest rates of interest and are a particular favorite of business owners because of the amounts they can lend- up to $5 million, which was recently raised. Imperative to secure an SBA 7(a) loan is a good credit history and proof that your business is profitable and has potential.
SBA 504 Loans:
This is one of the big ones. The 504 program is basically meant for real estate business or establishments requiring the purchase of heavy machinery, which is why their lending cap is $20 million. If you’re looking to buy a piece of property or machinery for your business, all you need is a good credit history and a cash reserve equal to the amount of loan or more than that. If you can do that, you will enjoy the low interest rates and stable repayment methods that accompany this program.
SBA Express Loans:
These are the fast, speedy brother of the 7(a) loans. While other loans can take months to process, the processing for these takes a couple of days at the most. However, because they skip most of the security requisites and are much more prone to fraud, the lending cap is at $350,000. But it is a good type of finance for your business if cash is short and you need some quick cash to get matters straight.
As the name implies, these loans have a relatively lower lending cap (tops out at $50,000). These are a great money raiser for start-ups or new businesses looking for additional funding. All you need is a viable business plan, a good presentation and you can secure the funding. Interest rates are usually left to the bank’s discretion, so make sure you get most out of the loan program.
Business Line of Credit
Do you enjoy the flexibility of using a credit card as much as you want, but would rather have the benefit of cash? Then a business line of credit may be for you. Like a credit card, the bank will give you a set limit that you can’t spend more than, but you can continue to borrow, then pay it back, again and again. The perks of a revolving line of credit like this are that you can borrow just what you need. The drawbacks include a higher rate of interest, similar to rates that credit cards have. The better your business credit score, the more competitive rate you’ll be able to secure. With rates ranging from 7 to 36per cent, it’s in your best interest to keep your credit in check so you can qualify for those lower APRs.
Believe it or not, grants are finance options for business that don’t require paying back. Yes, you read that right. Much like an educational or a research grant, these grants are mostly issued by the government and some other private corporations and companies do so too. However, this being an essential ‘cash-grab’, there is a pretty stiff competition over the grants but with the right amount of brainstorming and presenting your business plan, one can win a grant. The amounts can range from the thousands to even millions and since you don’t have to pay a dime later on, therefore, it is among the best financing options for a business.
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If you are well-connected enough or your product has generated enough buzz for the people to be clamoring for your product, crowdfunding may be a good option for you.
Designed to allow backers to chip in to fund one of several tiers, you may be expected to give something in return – usually product or exclusive perks. Crowdfunding has a viral nature that works best when shared on social media with a brilliant marketing platform and a clear call-to-action. While crowdfunding has been hugely successful for some brands, even out-earning the funding goals, it’s a dense space with many people competing on the most popular crowdfunding platforms. It may be difficult to get your message out there, and only a small percentage of projects hit their funding goal.
Since the money doesn’t get paid back, however, it’s an interest-free way to fundraise. You’ll only pay the platform fee, a fee to transfer the funds to your bank or online cash account, and whatever it costs to fulfil the funding gifts to donors.
Borrowing from Family and Friends
While it may not be suggested to mix family and business together, but sometimes, the best option would be reaching out to friends and family over the provision of financing requisites for your business. If your family and friends believe in your project, it’s perfectly OK to ask them to chip in, but do so with some guidelines. First, make it clear if they will be issuing you a loan, or if you expect it to be a gift. Loans should come with a basic contract that clearly explains the repayment terms (amount to be paid, the timeline for payment, and any interest or fees.)
Family and friends can also be a source of technical or training support. Don’t hesitate to include them in business plans, when appropriate. As with anything that involves loved ones, try not to let emotions get in the way of a solid funding plan. Even as your business grows, try to keep matters of money strictly professional.