One of the most common concerns for entrepreneurs is how to get their hands on enough financing to continue growing their new venture.
That’s because when it comes to funding your new small business, your personal savings and investments from friends and family can (at times) only go so far. Eventually, many entrepreneurs find that they need additional resources to afford great deals on inventory, or to finish up a renovation, or to pay for that great new digital marketing campaign.
This is where business financing comes in, and few forms of financing are as accessible to new entrepreneurs as business loans. Venture capital goes to less than 1% of all startups, and female founders got just 2.2% of all VC money in 2018 . Plus, most business grants are competitive and for low dollar amounts.
Then again, many business loans come with high interest rates or hidden fees that come back to haunt the business in the long run. As a new entrepreneur, you may have a hard time finding a lender who will give you a good APR for a loan. That’s because you lack the business credit history and track record of profitability most lenders want to see.
The trick is finding responsible forms of financing that are both impactful and affordable. Here’s a rundown of seven forms of financing for new entrepreneurs:
The Small Business Administration has a loan program that partially guarantees bank loans to small businesses across the country. This encourages banks to extend low rates and generous repayment terms to small business owners, whom they would normally overlook.
The SBA Microloan program is geared toward new business owners. You will still need to demonstrate good personal credit, submit a business plan explaining how you will repay your loan, put up collateral, and sign a personal guarantee. The underwriting process is long, but it’s worth it.
SBA Microloans max out at $50,000—the average loan amount is around $13,000.
Business lines of credit
A business line of credit (LOC) is a flexible form of financing similar to a credit card. A lender gives you access to a pool of money and you draw on that pool as needed, paying interest on what you withdraw.
What makes LOCs so attractive is that you don’t pay a cent for them once you’re approved: You only pay once you withdraw on the line. That means you can keep the line in your back pocket in case of emergencies and use it only when/if necessary.
Traditional banks, online lenders, and even the SBA (albeit usually for more established businesses) can offer you a line of credit at varying interest rates.
Business credit cards
What is a credit card if not a short-term loan? You can use your business credit card to finance smaller purchases and give yourself breathing room to pay it off each month. Plus, depending on your card, you can get reward points, purchase protections, and other perks.
New entrepreneurs with good credit may be eligible for a credit card with a 0% introductory APR—which means you get access to an interest-free loan throughout the life of your offer. (Of course, once the intro period ends, the APR will vary with the Prime Rate and will also depend on your creditworthiness.)
Entrepreneurs with bad credit can start with a secured credit card—where you give the lender a certain amount of your own money to hold and borrow off of that amount—in order to build credit and open up other credit cards or explore other financing options.
If your small business needs expensive equipment in order to get things done—trucks, heavy machinery, kitchen equipment, and so on—equipment financing is an excellent choice.
Equipment financing is when a lender extends the exact amount needed to purchase a piece of equipment to the borrower. The borrower then pays that off, plus interest, over a set period of time.
Best of all, equipment financing loans are “self-secured,” meaning the equipment itself acts as the collateral. If for any reason the business owner can’t make their payments, the lender will seize the equipment, but otherwise that debt shouldn’t affect the business’ other assets.
If you’re already seeing cash flow issues as a result of clients not paying their invoices on time, you can use invoice financing. The lender will front you the amount owed for the invoice, and charge you interest plus a fee that depends on how long it takes for you to get paid by your client.
This form of financing is also self-secured, so it’s responsible and can be fairly inexpensive depending on the lender.
There are many different crowdfunding platforms, from donation- and reward-based sites to equity crowdfunding and peer-to-peer lending, where new entrepreneurs can make their pitch for financing to their peers.
The stakes are low with crowdfunding (if you don’t make your goal, you may not be able to keep all the money raised) and the only thing you have to lose is your time and energy. This makes it an option worth exploring—especially for women, who are more successful at raising capital via crowdfunding than men.
Finally, if you can’t find a business loan with an interest rate that makes sense for you because of your limited business history, you can look into a personal loan.
You can use personal loans for business purposes, and they may have lower interest rates than business loans. You won’t get as much from a personal loan in terms of total dollars, but it might just be the jump start your business needs.
Entrepreneurs seeking business financing have plenty of options to explore. Keep in mind, however, that all forms of debt financing present risk, and you need to have a plan in place to turn your loan into a springboard for success. The last thing you need is more debt than you can manage.
Once you use these forms of financing successfully, even more affordable financing options will be available to you, and you’ll have a chance to bring your now-established business to even greater heights.