Financing options for small businesses
There are many different financing options available to small business owners. And all of these small business financing options have both positive and negative aspects to them. This article discusses more about four of these small business financing options.
There are many people in the world who believe in small businesses and they have the money to help make these small businesses successful. Usually these private investors are referred to as Angel investors. A small business owner who uses this type of funding for their small business may also get some terrific business advice as well as a business contact from their Angel investor. Many times angel investors choose to invest in groups. This means that more than one person will be investing in a small business and each gets part of the entire deal.
As with all of types of small business financing options, there are both good and bad aspects to
Depending on the type of small business, there may be grants available to help fund it. Many states have different grants available from the government as long as the small business meets a certain set of criteria. The great thing about grants is that it is free money. As long as the small business qualifies and uses the money a certain way they do not have to pay it back. But it can be very hard to get grants since they are free money and other small businesses that qualify will want that money too.
Getting a business loan is perhaps the most common option that people think of when they want to get funding for their small business. A small business owner can get a business loan or a line of credit through a bank after creating a business plan, filling out loan applications, etc. When getting a business loan or a line of credit it is also important for a small business to have collateral and a good business credit history, and it can't hurt for them to have established a good relationship with the financial institution they are looking to get the loan from.
Business loans and lines of credit can be a great way for some small businesses to get funding. But getting a loan or line of credit will mean that the small business will have to pay interest on the money they borrowed and loans can also be a little risky since the lending institution will likely require some type of collateral.
Family members and friends
Some small business owners turn to their family members or friends when they need financing for their small business. Generally small business owners use family members and friends as a last resort financing option. But borrowing money for a small business can be a good idea since it usually involves little preparation and the transaction can be completed relatively quickly.
Of course, borrowing money from family members and friends is not a perfect choice for small business funding. If this business transaction is not treated professionally then family and friend relationships can be ruined.