Funding a small business is one of the first and sometimes most difficult steps many entrepreneurs will face. Often new business owners will have higher than usual expectations for their business idea without knowing where to look for money to start in the first place. In 2019, the failure rate of startups was around 90%. The research concludes 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year.
These statistics are not here to discourage you but to encourage you to perform your due diligence. This short guide to small business funding can help you along the path of overcoming potential rejection as you look to fund your next big idea. Here are five funding ideas to get you started.
1. SBA Loans
Loans that are guaranteed through the SBA can range from small to large and can be used for almost any business purpose. Loans can range from $500 to $5.5 million for long-term fixed assets and operating capital.
Different types of loans will come with a set of restrictions on their use, and you should talk to a representative from the SBA on which loan is right for funding your small business.
2. Private Loans for Small Business Funding
Many small businesses can seek private capital through friends, family, or angel investors. It is one of the riskier ways to finance a business and is not advisable as a first-line method for funding.
If you have no other way but to seek funding this way, consider whether you want to provide the party with equity in your business or create traditional loan terms.
3. Banks and Credit Unions
Not recommended as the first line of funding for your business, but a secure line of funding later on down the road. The difficulty with finding a bank loan to start a business is that many banks or credit unions will require either credit history or a list of business assets to lend against.
You will not qualify for a commercial loan without a substantial amount of assets, and it may be best to wait until you hit a growth spurt. Your best option is to find the right financing company to help you search for the best bank loans available.
4. Business Credit Cards
As a first-time business owner, you may think avoiding credit cards is a smart option due to high interest rates. This is not always correct. An astounding 22% of small business owners say that they rely on business credit cards as their top funding sources.
You may want to reconsider the possibility of establishing a credit profile as a new business and the benefits it can provide to you in seeking loans from a bank or credit union in the future.
5. Crowd Funding Websites
The revolutionary aspect of crowdfunding is that the lenders are coming to you. Well, that is if you have a great business plan to pitch to them. Many small businesses with great ideas for services or products can post their ideas to some of the best crowdfunding sites online.
This will help to raise awareness about their business and receive start-up funding in the process. You are not obligated to pay anyone back for the funds they provide to you. However, many businesses will provide gifts to investors if their funding goals are met.
Which Solution Is Right for Your Business?
Take into careful consideration these five small business funding sources before deciding on which one is appropriate. You may need to consider tapping into multiple funding sources depending on the startup requirements for your specific business.
We hope this small guide has provided you with valuable information on where to start your search for the money you need to start. Let us know what you think about this article, and our team will continue to work hard on bringing you similar, more informative articles about small business funding in the future.
