Whether you're looking for some cash to bring your business idea to life, finance a major purchase or cover a financial emergency, your small business has many options to borrow money. You can get your funding in a lump sum for a major expense or open a line of credit to help with unexpected expenses. You can also find special financing where you pay back the lender with equity in your business. Consider the purpose of borrowing money and the pros and cons of your borrowing options.
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Some different ways to borrow money include business and personal loans, crowdfunding, business payday loans, lines of credit, installment plans and private investors.
Obtain a Business Loan
Available through banks, credit unions and other financial companies, business loans can help with startup, expansion and ongoing costs. These loans can provide a large amount of funding if you can meet requirements such as the minimum business age, annual revenue and credit-history criteria that your lender sets. The Small Business Administration offers a program for new businesses that struggle to qualify through lenders.
Consider a Personal Loan
If you're just starting out and have trouble getting a bank loan, you can ask your bank about a personal loan. These don't require collateral, provide quick access to funds and often come with attractive interest rates. Your lender uses your personal credit history and can provide a loan that usually has a term of up to five years.
Get a Line of Credit
When your small business needs some funding from time to time, consider a business line of credit that lets you borrow from a set amount only when needed. This helps you minimize your interest charges since you don't borrow the whole amount at once. It also leaves you some flexibility to get funds to handle emergencies.
Finance Your Equipment and Inventory
If you have to replace some equipment or need help with getting enough inventory, you can find installment plans specifically for financing certain business costs. You'll simply make equal payments over an agreed period until you pay off your purchase. These payments often range from a quarterly to annual frequency.
Borrow Money Through Individual Investors
If you have personal contacts like friends and family who have some extra money, you could potentially borrow from them for your business needs. In exchange, you could offer them interest or give them a stake in your business as an alternative. In any case, this agreement needs to be in writing to avoid misunderstandings and personal conflicts.
Another option is to find angel investors through local business organizations. It can be competitive to get funding this way, but if you're successful, you can get both money and expertise in exchange for a stake in your business.
Get a Business Payday Loan
When you need working capital just to get you through your next payment cycle, payday loans from direct lenders can give you a cash advance. This loan is based on either future cash deposits or an expected sales volume. You can often get the money within as little as one hour, but the loans often have expensive fees for this convenience.
Get a Second Mortgage
If you have equity in real estate you own for personal or business use, you may qualify for a second mortgage that can provide some cash to use for business needs. This can come in the form of a lump sum or a line of credit worth a percentage of the property's value. You can benefit from low interest rates with this option but beware of closing costs and the risk of losing the property if you default on this type of secured loan.
Borrow Money Through Crowdfunding
Often used to launch a product or buy needed equipment, crowdfunding allows you to get a loan online from interested individuals around the world. Options range from holding a GoFundMe campaign that accepts funds from investors in exchange for future products or services to using a personal-lending site like LendingClub that uses potential business returns as the incentive.