When considering financing options for your business, there are several options beyond personal loans. These additional financing options include SBA loans, lines of credit, business credit cards, working capital loans, financing from investors, crowdfunding, and more.
SBA Loans
SBA loans are guaranteed by the Small Business Administration, a government agency that helps small businesses in the U.S. Lenders that offer SBA loans must follow government regulations that protect borrowers from undue risk when borrowing business funds.
SBA loans offer much lower interest rates, higher loan amounts (up to $5 million), and longer repayment terms (up to 25 years) than traditional business loans. However, compared to personal loans, SBA loans can be harder to qualify for, and some lenders may take into account your personal and business credit, the assets backing the loan, and your criminal history.
Credit facility
A business line of credit is a revolving credit that works like a credit card, rather than being funded in a lump sum like a personal loan. The lender determines the limit of funds available to you. When funds are withdrawn, interest accrues based on the amount withdrawn until it is repaid. Any remaining balance is also available. Repaid funds can be used again in the future. To qualify, your business' annual revenue, years in business, and business credit history are taken into consideration. Approved lines of credit must be renewed annually.
Working capital
Unlike most personal loans, working capital loans are short-term loans designed primarily to meet a business's urgent operational needs. The term “working capital” refers to the difference between current business assets and liabilities, and does not take into account long-term debt or assets. Working capital loans allow businesses to cover day-to-day expenses, and while loans are typically granted quickly, they have short repayment terms. These loans are ideal for businesses with high seasonal or cyclical sales. Years in business, annual revenue, and personal credit history may be considered to determine loan eligibility.
credit card
A business credit card works similarly to a credit card. The lender sets the card limit and you can withdraw funds up to the maximum limit. Interest accrues if not repaid by the end of the business cycle. However, many business credit cards function as charge cards, and the amount borrowed must be repaid monthly. Like a personal loan, eligibility for a business credit card is based on your credit score, but it takes into account your business' credit history rather than your personal history. A business credit card can give you access to high credit limits, low interest rates, additional perks, and business-related rewards, but finding the right card is essential.
Investor
You can also consider raising funds from investors. Investors can be either individual investors (also known as “angel investors”) or venture capital firms. The criteria for receiving funding from investors vary widely depending on the individual or company, but typically include a review of your business plan, company operations and governance, and financial statements. If approved, you can have access to either all the funding or “round” funding, where additional funding is contingent on your company achieving predefined milestones.
Crowdfunding
Crowdfunding is another option to consider. With crowdfunding, you can create a page on a website like GoFundMe and share the link on social media to solicit donors. You can also ask family and friends to donate. Individuals who donate can also receive perks, such as a percentage of ownership in the company. Unlike a business loan, you don't have to pay back the money you raise this way. However, while crowdfunding campaigns are easy to set up, it can be difficult to gather enough support to fund a large campaign.
