If you’re thinking about starting or expanding business there are a couple of things that you should be mindful of as you’re getting ready to make a big move. Owning and expanding a business takes money, and you will want to find a funding solution that best meets your business needs.
There are two options available to fund a small business: debt or equity. Debt is borrowing money from a source and then paying back the amount borrowed with interest. Equity is selling a portion of your company in exchange for capital. To put it in popular culture terms, think of going to the bank as debt and what you see on Shark Tank as equity.
One of the most common forms of debt financing is through a loan. Small business loans are available that have reasonable terms and can be a way of keeping the funding internal. Small business loans can come from traditional banks or the small business association (SBA). SBA loans are more complicated to obtain but usually have a good interest rate and provide a federal guarantee on your loan.
Small business credit cards can also be a way for your business to get smaller amounts of funds available quickly. If you’re just starting out you may not have the ability to get a small business credit card or may only be able to get smaller limits approved. Making sure to use the credit card wisely and paying it according to the terms will help you build your business credit responsibly. If you can, avoid carrying a balance on a credit card because there is usually a high interest rate associated with carrying a balance.
Less traditional debt financing is also available in the form of a cash advance. Some businesses may not qualify for a traditional loan and if you need money but don’t want to give up an ownership stake in your business then a cash advance may be an option to consider. Cash advances usually have high interest rates and have short repayment terms attached to them. Cash advances are available even if there is a poor credit history, but the terms associated with them can be steep. If you’re looking at a cash advance when funding your small business make sure to read the terms associated with it carefully and consider having an attorney or an accountant look through the details of the advance.
You can seek out investors to fund your small business but usually that means giving up a piece of your ownership interest in your company. Investors don’t always have to be mystery “big shots” – a lot of small businesses get money from friends and family as a way of raising capital. If you are looking for investors outside of your personal circle you can seek out angel investors or venture capital. Neither of those options is always easy to find, especially if your business is just getting started, as investors want to make sure that they will get a return on their investment.