Small businesses with less than 500 employees make up 99.9% of all businesses in the United States. About 98% of all businesses have 20 or fewer employees.
Many of these businesses have to close because of cash flow issues. A large client could leave or pay on an extended purchase order.
Even if a small business wants to grow, it’s difficult to get a funding request approved. Business owners are forced to turn to high-interest financing options.
No matter what your goals are, there are several ways to finance your business, especially if your business performs construction takeoff services. Read on to learn the top seven ways for funding your business and how you can get approved every time.
1. Credit Cards
This is the most common way small business owners finance their business. They might pay for training programs or other items that cost more than the amount of cash you have on hand.
The issue with credit cards is that they have high interest rates. Businesses spend much more on interest than they would with another source of funding.
Credit cards let small business owners be flexible.
They don’t have to give up ownership in their business and they don’t have to limit their spending. As long as the monthly credit card bill gets paid and they stay within spending limits, they can do what they want.
2. Personal Loans
How good is your personal credit? You could get a personal loan.
There are plenty of sources you can turn to for a personal loan. Online lenders, banks, and friends and family are sources of personal loans.
A personal loan gives you a good amount of flexibility because you can spend the funds on anything. Personal loans usually come with a lower interest rate than credit cards.
3. Operating Lease
Do you want to purchase equipment? Depending on the type of equipment you need, you could need a large loan. The terms of the loan could outlast the equipment, meaning that you’d have to pay for an asset you no longer use.
An operating lease gives you the opportunity to use an asset without actually owning it. Companies prefer to use this form of financing because it doesn’t show up as a liability on the balance sheet.
You can still claim a deduction on the payments, as long as you meet the tax guidelines. If you don’t meet the tax guidelines, the operating lease could become a capital lease.
Operating leases usually apply to cars, real estate, office and manufacturing machinery.
If you have an excellent product idea, you can use crowdfunding to finance the production of the product. It’s a great way to validate your product idea without investing a lot of capital upfront.
Compare the different sites before you sign up because they take a percentage of the funds raised. Some sites don’t pay out unless you reach your fundraising goal.
5. Invoice Factoring
Do you have a long sales and payment cycle? That could mean trouble for your cash flow. Some businesses, such as staffing agencies, healthcare companies, and manufacturing businesses get paid through purchase orders.
The purchase orders could extend to 60 days. That’s a long time to wait to get paid for services you already performed.
Invoice factoring, or invoice financing, lets you sell your outstanding invoices to a lender. They give you a percentage of the outstanding invoices as a loan.
They collect on the invoices, so when your clients pay, the amount gets subtracted from the loan.
The process happens relatively quickly, and they can give your business enough cash flow to meet payroll and other obligations.
6. Outside Investment
There are angel investors who are usually people who were successful in business and now invest in other businesses. These are individuals who invest in your business with the expectation of getting a return on the investment.
Venture capitalists are also investors who will take a stake in ownership.
You’re going to have to give up control over the business to get angel or venture funding. You need to know how much you want to give up and if it’s worth it or not.
7. Grants and Business Loans
The Small Business Administration offers government-backed loans through private lenders. These are business loans that have a low interest rate.
It’s quite a process to get an SBA loan approved. Read the terms of the loan because SBA has certain reporting requirements during the life of the loan.
Many cities and towns want to have a vibrant downtown core. That’s the key to attracting tourism, other small businesses, and increasing the quality of life in the area.
They often have economic incentives and grants available for businesses that choose to operate in certain locations. Check with your local area to see what’s available.
These programs are often a great way to fund your business without having to pay back a loan.
Tips to Get a Funding Request Approved
There are some things that you have to have in place before you finance your business.
Start by writing a formal business plan. This is necessary for loans and investors. You want to show that you understand the market conditions and have a plan for business growth.
Set your financial goals. Get clear on how much money you need and what those funds are used for. You’ll be able to narrow down the options for funding your business.
Finally, make sure your personal credit report is high. Some of these funding options require your credit score if you don’t have established business credit.
Options for Funding Your Business
If your business needs an influx of cash, you’ll be relieved to know the different ways to finance your business. There are traditional ways to finance your business, such as bank loans and venture funding.
There are unconventional ways to fund your business like invoice financing, crowdfunding, and operating leases. Before you decide on the form of funding, take the steps to ensure your funding request will get approved.
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