5 Ways To Finance Your Small Business
As a company owner, you have lots of business financing options. Banks and web-based organizations offer numerous ways to get needed cash. Here is a quick rundown of some of these options.
1. Purchase Order Financing
As its name implies, purchase order financing occurs when a lender buys the materials or inventory that your business needs to fulfill a major order. The lender gets a payment from the customer and subtracts certain fees. The rest of the invoice then goes to your company. Keep in mind that you can only get this type of financing if you have already secured the purchase order.
2. Equipment Financing
Some lenders specifically let businesses borrow money to purchase needed equipment. The company selling you the equipment may provide some type of financing, as well.
Crowdfunding is a relatively new form of business financing. You simply pitch your idea for a product and ask others to give you the money to create it. In exchange, you offer some kind of reward, such as early access to the product or shares in the company.
While crowdfunding is primarily used by entrepreneurs first entering the business world, existing company owners may want to consider this growing strategy, as well. The crowdfunding market could grow by nearly $200 million in the next four years.
4. Peer-to-Peer Loans
Peer-to-peer loans are similar to crowdfunding campaigns. To get one of these loans, you go to an online marketplace and seek funding from an investor. The marketplace manages the transaction in exchange for a fee. These loans work best if you just need a small influx of cash.
5. Bank Loans
Bank loans are the most traditional form of financing for a business. Banks offer both short- and long-term loans, and they can be used for numerous purposes, including working capital. Some, but not all, bank loans require collateral. Typically, a bank will only give your business a loan if you can prove that your company is stable.
Most banks offer Small Business Administration loans. A significant chunk of each loan is guaranteed by the SBA, a government agency that assists entrepreneurs. SBA loans are a popular option because they offer tons of flexibility. However, your company must meet strict requirements in order to quality. Specifically, you will need a strong business plan, a good credit score and measurable cash flow.
Your small business likely cannot survive on profits alone. Whether you are looking to expand or need some cash to cover expenses, the above business financing options could greatly help your company.