Millions of businesses are launched every year, and they range from tech companies to restaurant businesses. The challenge, however, for this businesses is getting capital to stay operational, especially in these tough economic times. The manner in which you finance your business can determine its success or failure. Luckily, if you intend on getting financing for starting a business and or growing your business, there is an amplitude of sources that offer financing. A lot of entrepreneurs have tapped into these sources, and they have seen their businesses grow into successful ventures. This article will outline some of the most common sources of business funding.
If you need financing to grow your business, a bank loan is a viable alternative. A myriad of small businesses have benefited from this source of financing. Bank loans, however, require businesses that have a good credit. Regardless, banks have for long served as the most common source of debt financing. Banks can offer businesses from short-term to long-term financing. If you qualify for a bank loan, you can receive asset financing and working capital to keep your business afloat.
Before you receive financing from a bank, they require proof that you can repay the full loan amount as per the agreement. This means that your business has to generate adequate cash flow to cater for the principal loan amount, and the loan interest alike. In order to obtain financing from a bank, you are required to present personal guarantees plus a personal asset as collateral for the amount you will receive. The best part about getting business financing from a bank is that you receive loan amounts relative to your credit status. Also, these loans have some flexibility, such that you can repay the full amount sooner and ax the loan agreement.
For those businesses that don’t have good enough credit to obtain bank loans, SBA loans are a good option to get financing. These loans by the U.S. Small Business Administration are open to all types of small business. If you are an entrepreneur looking to source financing from an SBA, there are a couple of things you have to put into consideration. Call them qualifications. To qualify for this type of loan, your business has to meet the U.S. government’s definition of a small business within your industry.
Moreover, the SBA cannot guarantee financing to your business if it can get the money you need by itself. They require you to apply for a loan from a bank or any other traditional lender and get disapproved. You’re applying for other terms that your business has to meet according to the type of loan. After it is established that you meet all the qualifications for an SBA loan, you are required to apply for a business loan from a financial institution that deals with SBA loans. This is a necessary process because the SBA doesn’t offer loans directly.
Accounts receivable funding/ Factoring
If you are looking for some cash to expand your business operations or cover your day-to-day business expenses, you may want to consider factoring. So, how exactly does it work? Simple, businesses sell their invoices to a factoring company in exchange for fast cash. You can use the money you get to increase your inventory or pay some of your employees. This is a reliable source of funding because some of your customers may be late in making their payments, which leaves you in a difficult position, especially when you have a lot of expenses to handle.
Unlike traditional lenders such as banks, this source of business funding ensures that you get your cash in the shortest time possible. You can even get it in under a day. Factoring, however, is limited to business and government clients- those that have strong credit. This is because the factoring company wouldn’t want to go through the trouble of not getting paid by your clients. Regardless, this is a very effective source of funding that allows you to free up some working capital enabling you to expand your operations. Interestingly, it is an unsecured source of funding. No collateral is required.
Who are angel investors? These are the small group of investors or sole individuals that invest in the business by making an equity purchase. This is one of the most common methods of equity financing. When investors purchase equity in your business, you can receive the funding you need plus advice on how to grow your business. They also bring with them their expertise, which is essential for the success of a small business.
Take note that getting an angel investor is not as easy as it sounds. The investors need to verify that your business has the potential for growth. After all, no one would like to jump ahead into a sinking ship. These investors also demand to see a viable business plan and exit strategy as well. The investors use these to determine whether there will be a return on their investment, and the profits they should expect to get. Usually, this type of business funding has a lifetime of about five years. If you deem this as a viable option for your business to acquire funding, you need to ensure that you seek legal advice. A lawyer will guide you on how the equity sale should be conducted.
Business loans and lines of credit
Another alternative for businesses to get funding is through business loans and lines of credit. With a business loan, the bank provides your business with some amount of money, which is to be fully repaid after a couple of years. On the other hand, a line of credit gives you a revolving facility. Your business can use it whenever you need some money, but you have to repay the amount on a regular basis. A line of credit works more or less like a credit card.
With this type of financing, however, you have to be aware that the bank holds its interests paramount. Therefore, before you get access to this source of funding, the bank has to assess your cash flow to determine your ability to pay. This means that you can only get funding if your business has an outstanding performance in generating money. Your business is also eligible for this source of financing if you have assets. This option is hardly used by small businesses and startups that have zero or little experience. Nevertheless, businesses can rely on it to cater for limited cash flows.
Online alternative lenders
Getting loans from banks and other traditional lenders for your business can be hard because of weak credit. As such, a new generation of online alternative lenders has sprouted to offer small businesses with the cash they need to get going. If you decide to go for this source of funding, there are some important details that you shouldn’t miss. One, these loans are more like bank loans. Despite their similarity to bank loans, they charge high-interest rates. They, however, disregard credit scores.
Compared to bank loans, they have a quick turnaround time and require little effort and documentation to apply. This source of funding can help your business improve its credit score- a very good incentive. Moreover, they have fixed monthly payments, but this requires your business to have good credit. Overall, they offer to finance for working capital, purchasing inventory, refinancing, and expanding business operations.
If you have a poor credit or have no credit history at all, you don’t have to worry about getting financing. Amidst all the sources of business, funding is microloans. Microloans usually feature small amounts, and banks don’t bother with such. Micro lenders offer them. Non-profit organizations that have different operating criteria that traditional lenders.
These type of loans have more flexible terms plus they require little documentation. Microloans, however, charge high-interest rates, and they offer loans ranging from $500 to $35,000. If you are looking for a microloan, numerous micro lenders all over the U.S. can help you meet your business’ financial needs. Usually, these loan are ideal for startup businesses. They are also helpful to entrepreneurs who would like to purchase a piece of equipment that will increase production. Generally, microloans are an effective source of funding that help businesses cater for minor, but necessary operations.
If you need outside financing because you are starting a business, you always need to be aware of the numerous small business loans out there. As a wise person, you don’t need to be on loan when you can secure a grant to succeed your business. However, you need to know that grants for both genders can be hard to secure. It is not there for anyone to take off. If you are seeking business financing, you need small business loans and business credit cards for women. For the small business grants, the competition is fierce. Moreover, it consumes a lot of effort and time to complete these transactions. However, the payoff can be worth if you are up for the challenge.
Let us look at the following 10 places women entrepreneurs and business ladies can secure business grants.
Small Business Federal Grants for Women
For the small-business workers, you need to be aware of the grants offered by the federal government. They are used for certain development, and research project or any business propelled in the rural areas. Remember that these grants are not there to cover all your startup cost or daily expenses. Moreover, all of them are up for grabs from the opposite gender as well.
Grants.gov is one of the largest databases of all grants that can be offered by the government. In this location or website, you can search for the federally-sponsored grants. When you are logged in to the page, ensure you filter the information on the left side of the page to get what you need on the image processed by the site.
- InnovateHER Challenge
The United States Small-Business Association hosts a wide range of competitions in business. The organization, moreover, hosts one of the largest annual business competitions with a remarkable product and service that will affect the lives of many women positively. To participate in some of these challenges, you must first enter a local challenge to win the prospective grants. In this capability, you will advance to the national level of business for the semi-final round. The top three finalists in the national level will win $10,000, $20,000, and $40,000 respectively.
- Small Business Technology Transfer and Small Business Innovation Research Programs
Both of these two competitive programs are SBA facilities based in the United States. They also work towards the provision of grants for small businesses that are working towards bringing a great contribution to the federal development and research. More than 11 federal agencies and departments including the Defense, Agricultural, Human Services, health, and other services offer grant opportunities. You need to log into their websites to apply for these grants. You can also search their grant opportunities at the SBIR website.
Local and State Small-business Grants
Because the small business grants from the federal government are limited are competitive and limited in many ways, you need to secure a chance to look for grants at the municipal and state levels. To get a pinpoint of some of these grants, you need to carry out your independent research. However, here are some of the places you can secure these opportunities.
- Women’s Business centers
The United States SBA program sponsors more than 100 business centers belonging to women countrywide. This program is also designed to offer help to the women entrepreneurs with access to capital and business development. Some of the most prominent companies in this industry, including the California Capital Management Company, issue capital to directly to women. Other corporations also assist women in securing grants from other sources in the correct way.
Many states and cities in the United States have economic activities and economic development agencies that aim at the promotion of the local economy of the city or state. While the agencies might not offer the same small business grants for women, they might help you secure the best chances of getting steering your choice to a certain fruitful direction.
- Small Business Development Centers
There are more than 100 SBA-sponsored centered located in all parts of the country. In most cases, these facilities are housed in universities and colleges. The SDBC offers a one-on-one, free business consultation session to any potential entrepreneur and business protective owner seeking grants or any business information at their locations nationwide. You need to schedule a consultation session with your local SDBC advisor. The advisor will also inform you about the grants as well as business financing options left for you to exploit in your locality.
Private small business grants for women
Some private businesses and organizations have developed a national grant program for women entrepreneurs and small business owners nationally. Let us look at some of them below.
- Amber Grant
The Amber Grant Foundation is one of the largest private organization that offers grants to women entrepreneurs and prospective small business owners with good business ideas. The award issues more than $500 to different businesses owned by women every month. At the end of the year, the organization issues a $2,000 grant for their winners every year. Their application process is not as difficult as the federal counterparts that can offer a larger amount for the same business. All you need to do is to offer an explanation of your business and describe the nature of the business you are venturing. You also need to pay a $7 application fee for consideration. The winners are chosen by the organization’s advisory board. They also look for the women with a good story and passion.
The Eileen Fisher, a women retailer in the clothing and fashion industry, issues more than $100,000 as grant awards to more than 10 women business owners in the industry annually. To qualify for this grant application process, women must prove to own more than 51 percent of the total investment in their various small businesses. You also need to prove that you have a valid business that has operated for more than three years. You also need to prove that your business secures more than $1 million in revenue every month. Moreover, you also need to prove that your business is focused on social or environmental challenge.
Two other Good Grant Possibilities to Try
These options are not meant for only the women. However, they are some of the best possibilities for small grants as consideration.
- FedEx Small Business Grant
You can receive more than $25,000 in total value when applying for the FedEx grant. This grant offers the same amount of money to more than 10 businesses every year that offer explicit work in the business world. You don’t need to show them how you will use the money as it is an optional value. All you need to show them is a short video that gives a quick recap of your business nature in the industry. To apply for this loan, you don’t need a FedEx account.
You can also secure a $150,000 grant offered by Chase Bank to more than 20 businesses that have applied and satisfied the Mission Main Street Grants Board of Councilors for eligibility. To be eligible for this grant by Chase Bank, you must prove to the members that you have been in the same business for a minimum of two years and had less than 100 employees. You also need to answer a few questions to be eligible for the loan.