Small business financing refers to the activity of funding a business owner with money so that he can set up a business, buy a working business or bring changes to an existing business. According to your needs and wants, there are many ways by which your small business can be financed. Here are some of those ways.
Assets – Mostly, small business financing is done by means of using the assets of the business owner. In case of absence of liquid assets, leverage is an option to finance your business. It should be fairly easy to sell out all those unnecessary possessions. Strike good deals, and there you have it – a good amount of cash. If possible, you can even get a home equity loan but you have to be careful with the payments. If you fail to repay, your house can be taken away.
Angel Investors – These are the successful business owners who are capable of financing new businesses and helping them come up. Many famous companies have come up with the help of angel investors. They demand a certain percentage of the business returns, since they do not provide you with a loan but simply share the business with you. Depending on the risks involved in the business, the percentage of stake in business can go up. So in a way, you not only share the profits of your business but also the risks regarding it.
Bank loans – This is the most traditional form of financing a business. For small businesses, there are many different types of loans to choose from. However, it is not all that easy to acquire bank loans. They have high interest rates and they aim to make money off big loans. They can be detrimental for new businesses in case of failure to repay the loan. Collateral and even other business assets can be seized in such a case. Even then, with the right strategy and planning, bank loans can turn out to be helpful.
Credit cards – Though this is the most readily available form of financing and provides for small payments at a time, there are some things you have got to be careful about. For instance, the interest rates on the credit card climb up alarmingly high. It may even be about four times higher than the interest rate charged by a commercial lender. You would not want that sort of debt building up. Unless you are capable of paying back the loan before it builds up into a mountain with all that interest, do not go for this option.