Starting a business is a massive undertaking. Many aspiring entrepreneurs start off with a great business idea, but that alone is not enough. If you want to build a successful business, you’ll need to do lots of things and the capital to get them started.
Personal loans are loans granted to you as a private individual. These are usually unsecured— unlike secured loans that include collateral that can be taken away by the lender, personal loans have no collateral. This makes personal loans riskier for lenders, and as a result, personal loan interest rates are usually higher than secured loans. However, if you have good credit and can get a low interest rate on the loan, personal loans may be worth considering for your business funding needs. Since it is a personal loan, you can use it freely, too. Unfortunately, it comes with the drawback that it is part of your personal finances, forcing you to mingle your business’ funding with your personal finances.
The interest rate on a business loan depends on whether it is secured or not, with the latter usually carrying lower rates. If you can get a business loan with a low interest rate, it could be a good option for funding your venture.
In the United States, small businesses have many loan options open to them. The Small Business Administration (SBA) offers a variety of programs from the government, including the 7(a) Loan Program, the 504 Loan Program, and the Microloan Program. Apart from these loans, you can get a small business loan or a startup loan from almost any bank. Forbes reports that the best ones you can get a loan from based on loan cost, loan details, customer experience, application process, and eligibility or accessibility are the following:
- National Funding
Home equity loans enable people to gain money from their home’s value instead of using it as a mortgage. Many times, these funds are used for repairing the house or paying for renovations, but some entrepreneurs use this method to finance their business ventures. You can also take out a second mortgage loan for business.
Some small business owners opt for home equity loans against their houses instead of business loans. Home equity loans are chosen by entrepreneurs usually if their credit history is lackluster, they’re just starting up their company, or need immediate access to cash.
The downside to taking out an infusion in this manner is that you may lose your home if you can’t repay the loan. Additionally, it’s not ideal to mix business and professional finances.
Home Equity Lines of Credit
A Home Equity Line of Credit (HELOC) offers borrowers an opportunity to access cash as they need it, up to a set limit. This flexible option allows people to keep their interest payments low by only borrowing—and paying interest on—the amount of money they actually use from the line of credit, rather than the full amount the lender is willing to provide.
The benefits of HELOCs are that you don’t have to borrow more money than you currently need and can take out funds from your HELOC several times. However, the drawback is that since you’re borrowing against your home’s value, if you cannot repay what you owe, then you could lose your house.
Your business could potentially be funded by investors—specifically, debt or equity investors. Debt investors essentially loan money to your business which must then be paid back with interest. On the other hand, equity investors provide monetary absorption for your company in exchange for a partial ownership stake; usually meaning they’d have more funds than debtors, but also seek higher returns on their investment overall.
Here are some equity investors that you can approach for financial aid:
- Friends and family
- Angel investors
- Venture capitalists
In crowdfunding, many people donate money to an individual or corporation so that they can achieve a common goal. Oftentimes, this method is used to finance brand-new undertakings such as opening up a business or creating a film. Although it may seem counterintuitive, giving potential investors the opportunity to invest in something they’re passionate about often leads to success. With that said, other conditions for your campaign’s triumph are dependent on numerous factors including: the viability of your initial enterprise idea; steps you take towards realization; communication with alleged backers; perks/returns offered in exchange for investment; and finally how you go about marketing both the venture and the fundraiser itself. So far, only about 22.4% of all crowdfunding campaigns have been successful.
There are a variety of ways to finance your small business, and each has its own set of pros and cons. It’s important to weigh the options carefully and choose the one that best suits your needs. No matter which path you decide to take, remember to always stay mindful of your budget and make sure you can afford to repay any loans or investments. Good luck in revitalizing and growing your small business!