Substantial needs for capital may arise in the course of owning and operating a small business. Whether you’re opening a business for the first time or expanding or developing an established business, you will likely need to seek outside financing to successfully pursue your plans.
There are numerous types of financing available for small businesses. Below are three common types, one or more of which may be appropriate for your business.
1. SBA Loan
An SBA loan is a term loan backed by the Small Business Administration, oriented towards helping small businesses succeed. An SBA loan may be issued to a new or existing business, in widely varying amounts, for incredibly diverse uses.
Some SBA loans are more geared towards purchasing owner-occupied real estate, while others are oriented towards funding a small business creation. SBA loan types include the following, and others:
- 7(a) loans
- CDC/504 loans
- Microloans, of varying sizes
Each method of funding applies to distinct circumstances. It’s best to speak with an accountant or financial professional to assess what works best for you.
2. Commercial Term Loan
While similar in practice to SBA loans, commercial term loans are issued directly by a bank or credit union, with no government participation. These are among the most popular methods of financing the creation or expansion of a small business. If you have a good lender, terms are often quite reasonable.
However, term loans may have stringent requirements and little flexibility if you, as a borrower, cannot meet them. They are therefore a useful method of financing, but hardly the only one.
Crowdfunding is increasingly popular as a means to fund the creation of a small company. Some crowdfunding campaigns work by soliciting a large number of small-dollar donations from a wide pool of donors, often in exchange for gifts or other perks. While sometimes effective, these campaigns typically require a substantial social profile before launching.
Crowdfunding may also function by soliciting more substantial donations from venture capitalists or other private investors, often in exchange for ownership equity in the business. This method can be a great way to raise funds. However, it does require you, as the owner, to give up some control over your business.
These are only three of countless methods of raising funds for a small business. Consider a wide suite of options to determine what is most applicable to your situation. Contact us at WCK Financial to learn more.