Ways to Get Money to Finance a Small Business

Entrepreneurs are coming up with new ideas every day. Some of these ideas are unique, and they have a high chance of thriving in the business world. Actualizing and implementing a plan for a small business is not a walk in the park. The majority of people with such ideas get stuck when it comes to sourcing money for the startup and maintenance of their enterprises. However, with the current state of affairs, it has become hard for people to get cash for their small businesses.

Why can’t you get a Loan?

One of the most reliable sources to get money is by acquiring a loan from a financial institution. Unfortunately, some of these institutions are reluctant to lend money to new entrepreneurs. 

Some of the factors that contribute to this denial include;

  • “Too low” credit score – this determines how trustworthy the prospective business person is when it comes to finances.
  • Lack of enough collateral – collateral is anything pledged as security for loan repayment.
  • No evidence of smooth cash flow – New enterprises are mostly affected by this factor. The majority of financial institutions will only lend money to businesses that can prove the income made from their operations.
  • The industry’s riskiness – restaurants and hotels are considered risky businesses because their rate of failure is high. It is challenging to secure a bank loan for such an enterprise.
  • The application for the loan was incomplete – financial institutions require enough paperwork before lending you money. The information they are likely to ask for includes personal and business credit reports, business plans, and tax returns records, among others.

Apart from getting a financial loan, there are other ways of acquiring money for a startup, maintenance, or expansion of a small enterprise. Some of these ways were suggestions from individuals who participated in paid surveys done both on and offline. 

Such ways of getting cash for small business include:

Self-financing

This method of acquiring finances for your small enterprise is simple and straightforward. Nevertheless, it poses a significant risk in case the business does not pick up. 

There are a variety of ways that an individual can use to self-finance their enterprise:

  • Selling personal assets – it includes selling your real estate, bonds, and other valuable personal belongings to generate cash. It is advisable to consider the tax implications associated with selling some assets such as real estate
  • Use your savings – this is the easiest way to get instant cash to start your small business. It shows commitment towards the project, which might attract funding from other people
  • Use your credit card – this is somehow risky because it might lower your credit score in case there are delays in the payment. It is also vital to understand that there are high, interest rates for unpaid money at the close of the month
  • Borrow against your premises – this involves getting a loan against the value of your property. The majority of lenders require the homeowner to retain at least 20% of the property value after completion of the transaction
  • Tap into the retirement account – it is a risky undertaking because if anything goes wrong, you lose both the business and the retirement savings.

Crowdfunding

It involves using the internet to make appeals for cash from various people. Several websites give entrepreneurs reliable platforms to raise money for their businesses. These crowdfunding websites fund their operations by taking a cut of the raised money. It is quite a task to get donors who are willing to contribute to your business.

Therefore, it is vital to have a well-pitched presentation and an accompanying story. The pitch should reveal the efforts put by the entrepreneur to show their commitment to the startup. The donors also need to receive an assurance of something in exchange for their investment. The purpose of this assurance is to fuel their motivation to contribute towards the startup.

Angel-investors

These are successful business people that are willing to invest in new businesses, often in exchange for a part of the business equity. In most cases, apart from financial help, these investors also give guidance based on their experience in that particular business field. They can also help the business thrive more by connecting it to their existing contacts and networks.

There are several ways of discovering angel investors. Booking an appointment and approaching them at an investment conference are some of the best ways to do it. All that matters is how well the entrepreneur presents their idea to the investor.

Contributions from Family and Friends 

One should exercise caution when borrowing money from friends and relatives. Getting money from your relatives could affect their finances in the future and ruin your relationship with them. Such cases may arise whenever anything goes wrong with the business idea. It is, therefore, essential to ensure that you have proof of the idea’s viability and projections of when your friend or relative will get their money back.

Get an SBA Loan

These are loans offered by financial institutions and backed by the Small Business Administration body. 

However, there are a few requirements to qualify for this loan, which includes:

  • The borrower should first be turned down by a financial institution
  • The business should meet the government’s definition of a small business
  • Meet other criteria based on the loan type

Get an SBA Loan

Starting and marinating a small business is not a joke when it comes to finances. Presently, it has become quite difficult for banks, friends, relatives, and even investors to lend money to entrepreneurs. However, your credit score, enough collateral, and adequate information can help you secure a bank loan without so much hassle. Various small businesses require varying amounts of money. In this regard, it is upon the business owner to identify how much they need to start-up, expand, or maintain their enterprises. The source of money, in most cases, is determined by the amount that the individual needs. The bank is in a better position to finance the start-up of a business as compared to borrowing from friends and relatives. Additionally, the business owner should consider the method of acquiring money, which will not stress them during payback.

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