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.
Nonprofit Micro-lenders
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
Equipment Leasing
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
Angel/Venture Capital
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
Crowdfunding
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
Deciding and finding the right funding sources is complicated and takes time. There are certainly other funding sources beyond the above listing. When deciding on funding pick the one that is right for you and the business. Don’t over commit and get a high-priced loan. It is better to wait and save before you delve into a loan for your business.
Contact us if you would like additional information on how to fund your business.
CONTACT US WITH QUESTIONS
