Raising Money for Your Small Business 

money (1) bagIf you are a new business owner or an entrepreneur raising money for your firm, there are plenty of borrowing options available. If you need to improve your credit or if your business does not have credit yet, there are still options for you to raise funds you need. Here are a few ways to generate capital for your company.

Small Business Administration (SBA) Loans

The SBA gives out a quite a few loans, over $9 billion last fiscal year. There are many programs available ranging from real estate to equipment and even disaster loans. There is also a short-term micro-loan program available for up to $50,000. However, these loans are not granted directly by the SBA. Rather, the SBA works with lenders and other partners to guarantee repayment of funds and lessen risk. There are loan options for up to $5 million with interest rates from 4% to 10% and repayment terms up to 25 years. For a more defined comparison visit Leo Welder’s Guide to SBA Loans, or find a lender near you with the SBA search tool. Whether you are starting up, expanding, or refinancing, there is an option available.

Working Capital

Working capital is the difference between assets and liabilities. Your assets include cash and assets easily convertible into cash. Your liabilities are obligations often due in a year or less. In order for a business to operate well, it is ideal to maintain a positive working capital and thus meet operational needs. If you do not have a healthy working capital, you may not be able to pay your bills on time. Loans for working capital must be used to finance everyday operations, such as paying employees and taxes. They are not  meant for purchasing assets or investments. Some lenders require capital as collateral but others may not; this depends on your credit history and financial situation. Of course, unsecured loans that do not require collateral often come with higher interest rates.

Short-term Loans

Not all lenders need a credit check. Some lenders, such as PayPal, base the loan on your sales history and offer repayment terms that are agreeable to your firm. A percentage of each sale you make will go toward the repayment until the balance is paid. If you try to avoid paying them by channeling currency away from them, you will still have to pay them monthly.

A business utilizing a short-term loan should always understand the terms and conditions of borrowing funds. This option is usually pricey, not the first thing you choose. Repaying quickly is best to avoid interest. The rates of these loans are high but they might be better than charging on a credit card.

Depending on your location, there may be more borrower protections. These loans are likely to have much lower interest rates than payday loans. Knowing the difference between these types of loans can help you lower your cost of doing business. Always read the fine print on the contract so that you know what the true costs are.

Advances to Pay Invoices

There are things you can do when cash flow is an issue. Services such as Fundbox and Invoice Advance will pay your verified invoices for you. Each lender differs, but you either will receive some of the invoice and what is left over subtracting a fee when it gets paid, or you will get all of it and will pay the fee over a period of time.

Loans with No Credit

If a bank asks for two years of perfect credit, do not be surprised. There is a downloadable guide by Mulligan Funding named “How to Get a Small Business Loan With No Credit.” According to this guide , It’s extremely hard for small business owners to qualify for a loan unless they have a lengthy and perfect credit history. The reason for the big reduction in bank loans is due to the financial crisis of 2008.

Home Equity Lines of Credit (HELOC)

Another option available to entrepreneurs who have not qualified for other types of loans is the HELOC. This can cover costs of operations or emergency costs. Tread very carefully before committing to this – you could lose your business and your residence. This solution offers a revolving line of credit like a credit card, but your home is collateral. In actuality, you would be risking your house to pay for business expenses. You may receive a low interest and low monthly payment; lower than a traditional business loan. A change in the interest rate could increase your cost and risk. Consider all other avenues before choosing this option.

Comparative Tools

Many tools are available to help you make a decision and can speed up the application process. Try looking at many lenders side by side to assess what is acceptable for you as far as origination fees and interest rates. Looking at up to ten lenders is recommended by George Clouiter, CEO of American management Services. Make sure to have proof of income, or at least a business plan to support your application and show how you will generate capital. Also provide income documentation (personal) to support the loan.

Now that you know more about generating funds for your business, consider your options carefully to find the best fit for your needs.