The Complete Guide to Your Small Business Funding Options

The most intimidating challenge we see with many business startups is perhaps finding the right financing method- for small businesses, finding options reprieve their financial woes is quite a challenging task.

Fortunately, we shall guide you through the process of seeking finance for your small business.

If you're new to the world of small business funding and probably looking to explore all the available options, then this guide below we attempt to cover the major options and a few obscure options too.

Self-Funding

When starting a business, the first step that many entrepreneurs take is to check their bank statement to see whether they have the cash to get started.

Others will hit on their immediate family members and even friends for funding.

After all, this avenue will allow you to start your business without taking on debt or giving away equity.

Besides your personal savings, you might also be holding assets that are easy to turn into assets. While turning the assets into cash might come with some fee or tax implications, it means you start your business with cash and with no debts.

Now, while you might not have massive amounts to cater for all the expenses, your personal savings will account for at least 20-30%, which is a good thing because it lets you extend further what you can get your business started.

Equity Financing

The next funding option is based on giving away equity in your business, and it’s a great way of avoiding taking on monthly debt.

While many entrepreneurs think that this form of funding only applies to families and relatives, there're plenty of investors who would be willing to act as salient investors.

Take, for instance, Angel Investors; they're ideal when your business is at the early stages, and it needs more funds for expansion.

Typically, Angle Investors will require an equity stake in your business, in exchange for investment capital.

However, unlike family or friends, getting funding from Angel Investors is quite a strenuous process and will require you to button every detail of your business plan.

Venture Capital is yet another form of equity financing that works well for start-ups with high growth potential.

However, it's a risky endeavor and comes with enormous risk, and it's for these reasons that venture capital firms, which are comprised of professionals who know the ins and outs of financing.

Secured Business Loan and Collateral-Based Options

This is probably the most popular form of debt financing that a majority of start-ups look up to.

With this type of funding, you simply need to visit your local bank, and if you qualify, you can secure it by offering collateral.

The most common form of secured business loan is the Small Business Administration (SBA), which is part of SMB- read this guide for SMB's.

SBA is the most popular form of small business financing for small businesses and entrepreneurs like this option because it's quite flexible and can be used on a variety of business purposes, including starting a business, equipment purchase, or expansion capital.

In addition, this type of funding comes with low-interest rates and a longer repayment cap. The 5$ cap on the SBA is also sufficiently enough for most of the small to medium scale businesses.

Unsecured and Collateral-Free Loans

One gripe with the secured funding is that they require entrepreneurs to avail collateral so that they can secure a loan.

Unsecured-loans, on the other hand, are a unique funding option that doesn't require entrepreneur collateral to secure a loan.

The unsecured option is often a mainstay of the fintech companies, or rather the online lenders.

It's easy to secure, has a fast approval process, and does not have stringent requirements; in any case, you simply need to show your proof of business and show you're the legal owner.

Expectedly, however, the amounts are relatively low, compared to other funding options.

Nonetheless, it still offers a great way to boost your finances and can come in quite handy when you need money for an emergency.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.