During the course of a small business’s lifetime, there come several times when the owner is hard-pressed for cash and wants to find a way out of the situation with a quick and effective strategy that will give him the money that he wants without putting the business in trouble. Rough patches are normal for businesses no matter what they are like small businesses, startups, large organizations and more. If the small business owner knows where to go and what to do, they can easily get the cash that they require and fulfill their needs and pay back the cash later on. Or they can get the cash against their shares and hand over some of the company to the investors. The numbers of ways that a business owner can get the cash that they want are various, and they all have their own pros and cons. The trick is to find the right method at the right time so that you can minimize your risks while running your business smoothly and efficiently.
When we talk about funding a small business, there are two ways that we can do that. The first one is debt and the second one is equity. When we talk about debt, it means that the business owner will get the amount that they require with a note. This note will tell them all the terms that are related to the repayment of the money. This will include the interest as well as the amount of time that has been decided for the return of the cash, among other things. There are benefits and drawbacks with this way, and you have to know them both before making a decision. The benefit is that no matter what happens, you will still be in full control of your company. The drawback is that you will have to make regular and timely payments to the lender institute or person. If you don’t pay the money back within the set amount of time, there will be consequences. This is just one of the many small business funding options that you have.
Another method that you can use to finance your small business is equity. This is the way that you can get the cash that you need by turning over a part of the ownership of your company to the investor. The advantage that you get from this method is that you don’t have to worry about repayment. The downside is that you have to give up a part of the business’s ownership.
Which Method to Choose?
Both these methods are popular among various small businesses. Let us see the different ways that we can fund our business under both these concepts.
A lot of small business owners get the idea to fund their own businesses through personal finances, and that is a good way too. They use credit cards, a second mortgage on their houses for this purpose, or they can also sell an asset to get the money that they require. This could be anything from an investment property, a boat, or something like this. Just make sure that you have done all your research as using personal credit cards for business purposes can easily throw you down a spiral that you can never get out of.
Friends and family
The other way that people go for is to ask your family and friends for a loan. This might seem like an easy and effective way of generating cash, but there is a downside to it as well. It’s not necessary that the plan that you had for your business works out like it was supposed to. If the business fails and you are unable to pay back the amount, it could lead to ruined family ties and friendships as well as animosity among yourselves. If you do want to go this route, make sure that you and your family and friends know what could be in store.
Another way that has gained a lot of popularity nowadays is to go to an angel investor and ask for the amount that you require. These are wealthy people who are looking to invest their money in businesses that have a good chance of making it big. Now, these investors are also coming together to form investment groups. The benefit is that it lowers the risk factor as the risk is divided among multiple people instead of just one person. You can easily search for angel investors by using a search engine, or you could go and talk to your chamber of commerce, and they can guide you in this aspect.
One way that you can get a handsome amount of money is by accepting someone as your partner. They may choose to be an active part of your business by becoming an employee or not. It is totally up to the terms that you set between yourselves. This way not only can you get immediate cash, but you can also benefit from their networks and resources in the future. The only problem is having to give up total control of your company and sharing it with someone else.
Another way of funding that is seeing a lot of fame is crowdfunding. This is an internet-based approach where you can pitch your idea, the project to hundreds and thousands of people and offer them something in return. That could be debt, or you can set some rewards for your investors. The crowdfunding platforms are continuously growing, and their popularity is increasing consistently. Just make sure that you pick the perfect platform for your small business and that you have a network of friends who can help you get the word out. This is not a long term strategy, and you have to set a time period for it. If you collect the amount within the set period of time, you can use it; otherwise, it will all go away.
SBA stands for Small Business Administration, and they have a plethora of programs that can help out small business owners with their loans. You will have to share your business plans and other documentation with the SBA and show some form of guarantee. Also, SBA loans take more time to get approved as opposed to the other ways that we have discussed earlier. So, if you are looking for something immediate, these might not do the trick.
Nowadays, small businesses have a lot of options when we talk about getting funds for their projects or expansion that they may have in mind. Just make sure that you do your research and select the right option for your business. And also have a killer business plan ready as you will be required to share it with the lenders that you contact.