Starting up a new business is a fraught process and small businesses are particularly vulnerable to market forces. The covid-19 pandemic has made this very clear. Small businesses that need a quick cash injection have a number of options at their disposal, and below are just three of the most common in 2020.
Bank Loan
Approaching a bank with proof of your business’s income or a solid business plan and applying for a loan is the classic way of financing a business. There are a number of alternatives in the modern world that take advantage of recent technology. However, approaching a bank and applying for a business loan is still a legitimate way of financing a small business.
Of course, in order to receive the loan, you will have to pass the bank’s approval process. They will look at your financial history, and that of your business. If you aren’t in good financial health, then your chances of receiving a bank loan decrease.
Crowdfunding
This is one of the newer methods that we alluded to above. Crowdfunding involves seeking small donations from a large number of investors. The difficulty when using this method is deciding what to offer to your backers. When there are a small number of backers, you can offer them a stake in your business. You can also do this with crowdfunding, but with a large number of backers, you can only offer a tiny stake in the business to each.
If you want to crowdfund the setup of a business, you will need to get creative with your offers to backers. For many startups and small businesses, especially those that are based around a single product, there are some obvious choices. However, other businesses might have to think outside the box.
With the right idea, crowdfunding can be a very effective way of raising funds. However, you need to adopt a strategy more reminiscent of a marketing campaign than a business pitch. You will still need to demonstrate the business side of things to people, but if you want to get the attention of enough backers to fund your idea, you need to get the word out there effectively.
SBA Loan
The Small Business Administration provides support to small businesses in times of crisis. As a result of that pandemic, the SBA has instituted three special programs designed to support small businesses and their owners financially.
However, the SBA also provides loans during normal times; you can find information about current interest rates for an SBA loan in the linked article. The interest rate of an SBA loan starts at 5.5%, which is the treasury index, with an additional 1% to 2.5%. The latter figure represents the prime rate.
The best financing options for you will depend on a number of factors. The nature of your business will play a big role. Some businesses lend themselves very well to one option over the others. SBA loans are generally seen as worth pursuing for those that qualify.