Your small business is off to a great start! Even though it’s only been open for a few months, growth is happening quickly. Customers are placing orders and demand for your products or services is increasing.
However, sudden success isn’t without pitfalls. As your business grows, so do your expenses. You’ll need to purchase additional inventory, hire extra staff, and otherwise spend money. Unfortunately, most small businesses typically don’t have enough capital on hand to meet all of their expansion needs. Don’t let your growing business stagnate due to lack of funds. Here’s a closer look at the top five places to get funding for a startup business:
1. Small Business Loans
Traditional business loans are a tried-and-true option, but securing them can be difficult. The most common type of small business loan is a term loan. The bank loans you a lump sum which you repay over a predetermined period with either fixed or variable interest. (Check out Types of Business Loans from Banks and Credit Unions for details.)
Loan eligibility varies depending on your business, credit score, the amount of the loan, the length of the repayment plan and many other factors. Traditional bank loans offer a reliable influx of working capital, allowing you to expand your business according to your needs.
However, they’re not always easy to get. Generally, even short-term loans for small amounts require a business history of at least a year, a personal credit score of at least 600, and annual revenue of at least $50,000. If your business is just starting out, traditional bank loans will often be out of reach.
2. Family Loans
Instead of borrowing from a bank, another potential option is a loan from family or friends. On the plus side, people you know are more likely to look past a potentially poor credit history. Loan terms and repayment plans are also likely more lenient and flexible than terms set by a bank. Also, interest rates can be low or non-existent with this type of loan.
Of course, borrowing money from family and friends is fraught with potential problems. Missed payments can lead to strained relationships. Even worse, missed payments might even put the lender in financial turmoil.
If you do borrow from family or friends, place the loan terms in writing. Also, make sure all lenders understand exactly what you’re doing with the money and what risks are involved.
3. Invoice Financing
Payments from clients don’t always arrive as soon as you like. An established business with a healthy cash flow can afford to wait for 30, 60 or even 90 days before invoices are paid. However, a fledgling business might not have the same luxury.
An invoice loan helps cover lost capital while you wait on payment for outstanding invoices. Two options are available: Invoice factoring loans and invoice discount loans. An invoice factoring loan provides you with a portion of the amount due right away; the lender then collects the full invoice amount plus fees and interest later. You’re technically selling your outstanding invoices to a company.
An invoice discount loan also provides you with a portion of the outstanding amount, but you collect the payment yourself later and pay the lender directly. You’ll still deal with your customers and invoices.
While invoicing loans can help cover a slow period in your business, they’re usually only a good idea if you’re confident business will improve soon. Otherwise, you could end up with far less money today than what you’re owed in the future.
4. Venture Capital
Venture capital is an influx of money from an outside firm. In exchange for capital, you give the group part ownership in your company. The exact percentage of ownership varies based on the amount of money given and the estimated value of your company. Aside from money, many venture capital firms also provide advisors and other non-monetary support.
Venture capital is ideal for startup businesses without much physical collateral, such as internet-based businesses which provide a service. However, venture capital isn’t easy to obtain. In most cases, your business will need to display a proven track record for quick growth. Plus, your business will likely need some competitive edge over the competition, such as a unique aspect to your product or service.
5. Business Cash Advances
Also called a merchant cash advance (MCA), this is an advance against the future expected income of your business. It offers several unique advantages, and some disadvantages, compared to traditional bank loans.
With a business cash advance, you get a lump sum of cash in your bank account typically within 72 hours. You then repay according to a set percentage (typically around 10%) of revenue generated. Repayments are automatically withdrawn, usually either daily or weekly.
Even businesses with poor credit can typically qualify for a merchant cash advance. Requirements are often minimal. Your business typically needs a three-month history plus monthly revenue of at least $5,000.
A merchant cash advance is often the quickest way to increase your available capital. However, because MCAs aren’t loans, they don’t help improve your credit.
Also, the terms can feel complicated, especially if it's your first time applying. The simplest and most effective way to apply for a merchant cash advance is by working with a partner such as One Park Financial. They can help you get pre-approved for a merchant cash advance and also help connect you with their large network of over 20 funders. Plus, their expert team will help you determine the best repayment options based on your specific needs.
Even though your business is growing quickly, you still might struggle to obtain traditional funding from bank loans and other sources. With alternative funding options such as a merchant cash advance, funds can be available for use within just a few days. Contact One Park Financial today for more information. A quick influx of cash can help take your growing business to the next level!