Options for Financing a Business: What You Need to Know

Of the top 10 reasons that small businesses failed, 29% said it was because they ran out of money to stay afloat.

Financing a business is a difficult task, and even after a business gets started, it can easily find that profits aren’t as high as they need to be.

What can you do if you are in this situation?

There are different techniques that you can use to finance a business. If you’re interested in learning more, keep reading to see what you may try.

Financing a Business: How to Do It

There are several ways that you can finance your business, and the good news is that most of them are easy to understand.

Finding financing in any economy may be a challenge, but it is entirely possible. No matter what the funding may be for, including start-up funds or just some money to get through a hard time, you can get financing.

Given the current economic climate, securing funds may be tough.

There are certain things that you can do to get the funding you need, and here’s what you need to know.

Get a Bank Loan

One of the obvious things that you can try is to get a bank loan or a line of credit.

A loan is a specific amount of money that is dispersed to a person at one time in a single large payment. 

Bank loans will have a fixed or variable interest rate. They also have a fixed repayment term and strict guidelines. 

For instance, a title loan is a loan that is secured and people borrow based on using their vehicle title as collateral. Title loans can be a great way to get money quickly for financing a business.

A line of credit acts like a credit card in that you have a maximum amount of money you can use over time and you can borrow against that amount as you use the money.

After being approved for a line of credit, you can use the money any time you need it for business needs. It also can be used as an alternative option for overdraft protection against a checking account.

Factoring

This is a finance method that you can use where a company sells its receivables at a lower price to get more cash right now.

It may be used by a business that has bad credit and can’t get a loan or by a business that has to fill orders before payment.

Factoring can be an expensive way to get money, but it works in the long run.

Businesses that sell receivables generally will pay a small fee that is a percentage of the total. This is not always the most popular way to finance a business because overall, the interest can be quite high. 

Regardless, this is a way to raise some funds and it has started to become more common as the economic downturn has caused businesses to need more money.

Crowdfunding

This is a fun option that is most often used for start-ups. If you have a slightly lower cost project that is creative in nature, you’re likely going to be able to have more success with this financing option. 

Your friends, family, or even strangers can pledge different amounts of money to your business or project. 

One thing to remember about crowdfunding is that it is not a long-term option. It is supposed to help you with a single project or idea rather than maintaining your business. 

Another thing to think about is that crowdfunding websites are going to typically offer you the chance to give people that pledge money to you incentives, like free items in the mail or something similar.

This may cost a little bit of money if you choose to go this route, but you will likely get more people willing to pledge if they get something in return.

Bootstrapping

This is a silly word that actually is a pretty smart concept. Have you ever heard of someone pulling themselves up by their bootstraps? This is where the term comes from.

Someone is bootstrapping when they attempt to start and build a company using their own finances.

Bootstrapping is a funny word for a smart financial concept. The term comes from the phrase “pulling oneself up by one’s bootstraps.” An individual is said to be bootstrapping when he attempts to found and build a company from personal finances or from the operating revenues of the new company.

More than 80% of new start-ups are funded by the founder’s own money. 

These funds could be from a savings account, zero-interest credit cards, or other personal assets. For instance, someone may sell their car or their house to start the business with those funds.

This is not always the best route, but it is a viable option for people that already have funds they are not using. The downside is that there may be an unnecessary financial risk and it might not be enough money to sustain the business.

Credit Cards

Although it may be a risky choice, it is possible to use credit cards to finance your business. You have to consider the pros and cons of doing so.

The pros are that you can get the money right away and start using it to get money in return from profits that your business makes. A credit card is an easy way to get out of a temporary problem that might cause further financial woe if it isn’t fixed right away.

The biggest cons are that you could fall behind on your payments and you may end up getting deeper into a financial hole than you could have imagined. 

Choosing a Technique to Finance Your Business

When it is time to start financing a business, it can be a daunting task to undertake.

There are so many ways that you can possibly do it, so choosing the one with the least amount of risk and the highest amount of benefits can be a difficult thing to have to figure out. 

If you need some additional help with finding funding for your business, let us assist you! Contact us to get some extra information that may be able to help.