There comes a time in every business’ lifecycle when it has to secure a loan. Whether you want to grow your business, expand your marketing operations, increase sales or simply solve a cash flow problem- a business loan could come in handy.
As a small business owner, you should know about the various types of loans available to you. Majorly, there are two types of loans you can avail- secured and unsecured. Secured loans are usually safer, with lower interest rates. You can get a higher amount of credit as you are keeping some kind of asset as security.
Unsecured loans are risky and bear a higher interest rate as well. However, there is no underlying security to be given to the lender. Hence, they are easier to get. Such loans are usually not offered by institutional lenders like banks and finance companies.
Now, let’s look at the different methods through which a small business can arrange finance.
If you want to take your business to the next level and expect growth, opt for investment finance. You sell a small percentage of the business ownership to another individual. He will be a partner in all profits and losses of a business.
Many early stage start-up companies or businesses that have a huge growth potential opt for investment finance. They don’t just expect money from the incoming investor. He also brings his expertise, contacts and experience into the business. You can decide whether you want an active investor or a passive partner.
Bank business loans
Banks and other finance companies provide loans to small businesses. For getting these loans, you will have to manage a lot of paperwork. You will have to convince the bank or lender that your business is in good shape and your credit score is strong.
New businesses may also apply for the same but some kind of personal guarantee or security is essential here. Once you have a bank business loan, you start paying them monthly installments to pay off the loan completely.
You don’t have to share your business profits. At the same time, you cannot ask the lender to bear a loss if the business is not doing well. You have to keep making payments regardless.
The government provides grants and credits to several businesses. However, they are very difficult to obtain. The government only has limited funds to provide the debtors and the competition is very high.
Another disadvantage is that you will have to meet numerous different criteria to be eligible to apply. If you are just starting out, it could be easier to change your business idea to meet the requirements of the lender.
These three are the most popular business financing options available for small business. Apart from these, you could look for loans from personal contacts, loans against invoices and asset financing options. Crowdfunding has also become quite popular these days.
Make sure you research all the options available to you thoroughly before you find the right option for your business. Weigh the pros and cons properly and get set to start a new phase of growth in your business.