Finding for startups, emerging, and small established businesses varies greatly. Even mid-level businesses shop for best funding sources. What are the various funding vehicles and what are each of their features:
Traditional Bank Loans
Banks are asset-based lenders, ie. they like collateral. They are a great source for A-credit rated businesses.
- Normally have very good interest rates
- Offer many different kinds of credit, from loans and lines-of-credit, to credit cards
- Takes time and lots of documentation
- Need firm commitment and guarantees
Online Credit Marketplace
Has replaced the traditional bank lenders with a faster, simpler loans. Puts borrowers with investors.
- Easy process and fast decisions
- Better interest rates than other online lenders
- No collateral required
- No branch offices or human contact.
These lenders normally lend out small amounts but provide funds if the business fits their nonprofit cause.
- Often provides mentoring along with loan or grant
- Very good rates on loans.
- Good option if banks are not interested
- Limits on size of borrowings
- Applications process slow and lots of documentation is required
Business Credit Cards
For amounts, normally $10,000 or less, but could go up to $50,000 depending upon credit rating and net worth.
- Very quick processing and approval
- Very flexible repayment terms
- Generally requires strong personal credit
Online Alternative Lenders
Lenders that offer fast processing. Many offer mortgages lending but do business funding as well.
- Very easy and quick application process
- Quick decision and not a lot of documentation as other lenders
- Financing available to individuals with lower than A-credit ratings
- Normally high rates and weekly or even daily payments
- Fast repayment required
Merchant Cash Advance
You pay this lender a % of your sales taken directly from your credit card swipes
- For individuals or businesses with low credit scores
- Payments vary with volume dollar level of sales
- Very high cost of funding
- No early payoff reductions
- Payments use up investable and usable cash
May be available from the equipment manufacture you are buying equipment from or to customers who are purchasing equipment from you.
- Can be made available to startups or emerging businesses and not just for established firms
- Limited to the financing of the equipment only
Normally this involves selling a portion of your business ownership in return for funding/investment
- No loan, no loan payments
- Must give up large % of ownership and management of business to others
- Hard to obtain
- Normally want their investment plus a multiple of same by 18-24 months
Friends & Family
Many startups used their own funds but often also ask family or friends for additional funds via debt, equity position, or free gift.
- Provide great support for business
- Has potential to damage relationship if things go bad
- They are always there
Raising small amounts of funds via donations from friends, family, customers, or any others that find your project worthwhile.
- Funds are gifts, no need for repayment
- No credit rating is required
- Usually takes a long-time to get funding
- Most crowdfund campaigns don’t reach their funding goal