It costs money to start and run a business, however small it may be. Where can you get the money to start or sustain your small business? There are different startup financing options, some of which may be easy to access but are expensive. Others may be harder to get but are relatively cheap. Ideally, your circumstances should determine where to look for funds to start or support your young enterprise.
Here are some viable small business funding options for 2021.
1. Traditional Bank Loan
A conventional bank loan is a great option for funding a small or midsize enterprise. Such lending usually has the lowest rate on the market. Also, it’s a bit more straightforward when it comes to the repayment plan. However, it’s not always easy to qualify for a bank loan for a startup, especially if your business has a poor credit history or no existing relationship with the lender.
2. SBA Loan
You may apply for a Small Business Administration (SBA) loan if you can’t get funding from other conventional sources. Typically, SBA loans have lower eligibility requirements compared with traditional bank loans. However, such financing may take longer to materialize.
3. Business Line of Credit (LOC)
When you need flexible, short-term financing, a business LOC can help. You might use the funding to boost your cash flow, pay for emergency expenditures, or purchase inventory. It works like a personal credit card, letting you borrow up to a specific limit. You’re only charged interest on the amount of money you borrowed.
4. Invoice Financing and Factoring
If you have cash flow problems or other emergencies and can’t wait for your customers to pay, you may consider invoice financing and factoring. With invoice financing, you can borrow money against the value of your unpaid invoices and repay the loan over time. You may also sell your invoice to a factoring firm at a discount to secure funds.
5. Equipment Financing
Equipment financing may be useful when you need to quickly acquire and deploy mission-critical business machinery. It’s a non-flexible term loan that usually has a higher interest rate than more common small business funding options.
6. Revenue-Based Loans
You can take these loans if you have some type of security, such as real estate or equipment. Typically, hard money lenders offer this type of funding, and they usually charge higher interest rates. The loans have lower qualification requirements, but they might include extra costs.
When unable to secure traditional small business loans, crowdfunding can be one of your startup financing options. This financing approach lets you get capital for your young business by bringing on board several entrepreneurs who are willing to invest in your project.
The crowdfunding model you choose determines whether or not you have to pay the money back. However, it’s not easy to raise capital this way, and there’s no guarantee that your target investors would want to be part of your business venture.
These are some of the most feasible small business funding options for 2021. As you strategize to take your startup to the next level, don’t forget to secure it with the right business insurance policies. For assistance with all your coverage needs, contact an insurance professional at Westwood Insurance Agency today.