Small Business Loans: 3 Ways to Obtain Them
Starting a business can be a big risk for new entrepreneurs. It takes a lot of capital to get a business up and running, and not everyone has the cash to spare for that kind of enterprise. Many new owners choose to back their businesses with their own funds, such as money from retirement accounts, personal savings and loans from family and friends. This can put individuals at financial risk.
If you’re a small business owner in need of funds or a entrepreneur looking to start a small business, there are options available with banks and credit unions that decrease your personal risk in a business venture. Small business loans are more accessible than you may think. Here are three ways to find financing for your small business.
1. SBA Loans
The Small Business Administration specifically offers small business loans to encourage the growth and proliferation of small and local businesses. This financing tends to be long-term and can come with several advantages. For instance, a business that was unable to obtain a loan from a traditional lender based on a short credit history may be able to finance with the SBA instead. Loans from the Administration also tend to be low-cost compared to traditional financing.
2. Alternative Lending
There are a host of alternative lending opportunities that small business owners can use, such as peer-to-peer lending and merchant advances. The feasibility of these loans vary depending on your business’s structure, so it’s important to research and make sure the financing will actually benefit you. For example, if your business takes payment at time of purchase, factoring wouldn’t be a good fit, since those loans operate on the buying of accounts receivable.
3. Traditional Bank Loans
As mentioned before, banks can have higher standards than alternative lenders when it comes to credit history and other factors. However, your local credit union, community bank or national bank may offer small business loans with the understanding that smaller businesses usually don’t have the same history or capital as large corporations. Bank loans also tend to be cheaper because financial institutions diversify with deposit products, which gives them access to capital with low risk. This can potentially mean lower interest rates for you.
Funding a business venture requires capital, and delving into your own pockets can put you at financial risk. Small business loans can help offset that risk and provide you with more resources than you may be able to gather on your own. With so many financing options, you can build your business without putting your personal future at risk.