How to finance your small business and make your dreams a reality

June 01, 2021

Find out how to finance your small business so you can make your dreams a reality

A federal survey says that 44% of small business owners borrow money to meet their business expenses. Around 56% of these business owners use the loan to purchase assets or expand their businesses. So, if you are thinking of borrowing money to fund your small business, there’s no shame in doing so.

Finding a way on how to finance your small business can give you a headache and even discourage you from starting your own business. Probably all you wanted to do in the first place was to turn your hobby into a business, but it turned out you also have to get funding and create a digital marketing strategy, all by yourself.

Foolproof ways on how to finance your small business

No need to panic because we are listing you the best financing options for a business. That being said, there are no more excuses to start making your dream come true. Keep reading and find out how to finance your small business.

Traditional bank loans

Traditional bank loans can help you with funds in a lump sum. Thankfully, these loans rarely require collateral. When it comes to repayment, they often have fixed terms. 

Traditional bank loans also provide you with fixed interest rates. This means that the interest rate you’ll be paying will stay the same till your loan’s expiration. Also, traditional bank loans tend to last for seven years.

Qualifying for traditional bank loans is often challenging. Lending banks might require a strong credit score. Also, non-prime borrowers tend to get loans with unfavorable terms and interest rates. If you don’t have an established relationship with a particular bank, this option might not be right for you.

Short term loans

Short-term loans are likely to provide you with a lesser loan amount compared to a traditional bank loan. The loan repayment duration can run from 12 to 84 months. The interest rates are either fixed or flexible, depending on the lender.

Small Business Administration (SBA) loans

The Small Business Administration is all about aiding small businesses. That is why SBA loans can provide you with different options on how to finance your small business. Most of the time, SBA loans offer you conventional term loans. However, there are also microloans, lines of credit, grants, and others that fit a small business owner’s needs.

SBA loans tend to offer you lower rates compared to what’s obtainable with other lenders. Not only that, but this loan option also has lower credit score requirements. SBA loans are structured loans, meaning you can repay them on a set schedule.

Since SBA loans are backed by the government, they tend to have low interest rates. However, it’s helpful to know that SBA loans come with some additional costs, like the SBA guarantee fee.

SBA loans typically come with additional paperwork. You might have heard about this as a common complaint. However, the documents are straightforward and available online for download. Hence, it would help if you prepare the paperwork before meeting up with the lenders.

Business lines of credit

A business line of credit is considered revolving credit. This type of loan allows small business owners to potentially borrow the same funds multiple times. However, this is only possible if you can pay back the portion of what you owe after receiving the original loan.

When it comes to a business line of credit, small business owners are given a specified amount that they can borrow under their account. If you choose this funding option, you can borrow money, repay the amount, and borrow again. This is possible as long as you’re still in the draw period (most likely the first or second year of the loan).

After the draw period ends, you’re required to pay off any outstanding amount that reflects on your line. Borrowers often offset this amount with fixed payments. The repayment term tends to run for five years or more.

Best financing options for a business if you have a bad credit

If you have bad credit, and none of the mentioned ways works for you, we got you covered as well. Below are a few ways on how to finance your small business and stay in the game.

Personal loans

You can take advantage of a personal loan for almost any purpose. However, it’s important to know that this loan type hinges on your personal credit score. Fortunately, there are many lenders like Credit Ninja that can offer personal loans to borrowers with bad credit scores.

Business credit cards

This loan option works just like personal credit cards. If you need the short-term best financing options for a business, a business credit card might just be your prime bet. With this loan type, you can finance your everyday business purchases without any hassle.

Bridge loans

This type of loan is considered a short-term loan. Bridge loans are designed to help small businesses meet their obligations until they can secure a long-term business loan. This means that they are great for small businesses waiting to get paid by customers or wanting to resolve other debts before refinancing into a long-term loan.

To sum it up

Sooner or later, you might need financing to keep your business going or expand its growth. Lucky for you, whether you have a good or a bad credit score, there are many options you can choose from. You just need to pick one that suits your present business situation.

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