Knowing where to get funding for your business venture is indeed difficult. We do not know the underlying potential of our companies when they are new so it doesn’t always make sense to seek out funding methods that require us to give equity in exchange for cash.
Even though we do not have to pay the money that we receive back if we fail, we would also be giving up millions of dollars in share value if our business really becomes profitable in the future. Of course, the best alternative would be to find a business loan. You would obviously need to pay these back but you will be giving up any equity, which may be the more responsible choice.
There are different types of business loans, however, so here are 5 of the best ones that you need to learn about as a new entrepreneur.
To borrow money for your business, you have to be well prepared when it comes to projecting a timeline wherein your will start to become cash-flow positive. It is within this timeline that you pay back the business loans that you made to get your endeavor started. This applies the most to term loans, which are some of the more traditional loans that you can find. Remember that interest on these loans always accrues often and compounding rates, so do not opt for a longer-term for a lower monthly payment if you expect to be cash-flow positive sooner rather than later because it will eventually end up costing you more money in the end.
Lines of Credit
Business lines of credit are some of the top small business loans out there. The biggest advantage that you can expect with lines of credit is that you do not have to borrow too much or too little, you will be borrowing as you go. This means that true to the name, these are like credit cards for your business that allows you to spend money on things like payroll, infrastructure, development, inventory, and more as long as you agree to the terms of the lender. Just like credit cards, it may be easy to overspend when you are given this kind of financial power, however, so make sure to use these sparingly and responsibly.
Invoice financing is another great option because they are borrow-as-you-go oriented just like lines of credit but have extra protection against overspending because the loans will directly go to your invoices. It is not likely that anyone in your company will be able to use these on dubious purchases. Still be aware of the massive responsibility that invoice financing carries, however, because you do not want to be generating bigger bills than what you can realistically afford to pay back in the future.
Small Business Startup Loans
Small business startup loans are fairly direct in that they do not exactly rely on the more traditional methods of calculating creditworthiness that more traditional business loans rely on. They will probably look at your personal credit as the founder of the company, however, and will examine the performance of your business for the past 2-3 years in most cases.
It is not hard to tell what you can do with equipment financing because, true to the name, these are simply loans that you can take out to fund purchases of equipment. These are most similar to invoice financing in its structure.
If anything this guide aims to educate you on the many ways you can get the necessary funding for your company without having to give off an ownership percentage of the business. Use it well to find the right option for you and watch your company slowly become an enterprise to be reckoned with.