If you are a small business owner, procuring the capital necessary to keep your enterprise growing is an issue that must be addressed. The state of the current economy in the United States is different than ever before: the nation has been in a recovery from the Great Recession of 2008 for the last eight years. Typically in this type of recovery, small businesses are the vehicle that drives economic recovery by creating new jobs. However, in order to keep your small company growing, capital is needed — sometimes above and beyond what you are able to generate through the course of normal business operations.
Funding is usually broken into two separate categories: Equity, where you opt for acquiring capital for your venture in exchange for some form of ownership in your business. The benefit of this option is that repayment is not necessary; the drawback is that you cede part of the ownership of your business. The second is debt, which is where you borrow cash that must be repaid. By using debt to fund your company, you keep control of your company. The downside is that the repayment is necessary, and failure to fulfill the terms of your debt agreement can lead to serious negative implications for your nascent enterprise.
Let’s take a closer look at six ways (three equity and three debt) that you can fund your small business.
This is typically the first source that enters the mind of most entrepreneurs. You can tap into your savings or stock investments, or elect to take on personal debt (in the form of a second mortgage on your home or credit cards). It’s wise to take a look at the interest rates that you’ll be facing, of course. Another related tactic is to sell some assets that you already have on hand (land, property, or a second vehicle) to drum up the capital needed.
This is a term given to people who are usually very affluent themselves, and willing to invest in small ventures. Think about the TV show “Shark Tank”. The odds are decent that these folks were in your shoes at one point in time. By conducting some research online, you very well could happen upon this type of investor (or investors) in your area. A key point at this juncture is to stress the importance of networking. Word of mouth is a powerful tool. Use the relationships you have to your advantage.
This type of funding is somewhat similar to angel investors, but these projects are almost exclusively online. They allow you to utilize the vast network of the Web to reach out and market your company to thousands of different investors, by using a myriad number of different platforms. Again, it’s highly advisable to perform some serious due diligence online to ensure that you are tapping into the resources that best suit the needs of your specific company based on location, size, and scope.
SMALL BUSINESS LENDERS
There are numerous organizations that understand how important small businesses are to the economy, and by extension what fantastic investments they can end up being. The vast majority of these types of lenders will stipulate that the loan they provide to your business be secured by some type of asset. In addition, the interest rates for these loans can be high.
The federal government has a keen interest in driving small business growth, as it pays handsome dividends in the form of economic gains. The Small Business Administration (SBA) has numerous programs in place that provide vital capital to small businesses to spur economic growth. Keep in mind that these are still loans, and qualifying for one of these loans often requires a great deal of bureaucratic red tape (you are dealing with the government). However, this is a legitimate funding source for small businesses.
An obvious choice, traditional lending institutions do make loans of varying sizes depending on your situation. The drawback to using banks is that their requirements are often the strictest in that you need stellar credit and must put up collateral for the loan, to name just two of the main prerequisites.
As a small business owner attempting to grow your budding enterprise into a flourishing company, there are many different options available to you — both in terms of equity financing as well as debt financing.
On a closing note, complying with the ever-changing tax codes and keeping accurate books is a must for any small business owner. In these areas, Gallati Professional Services has you covered. Give us a call or reach out to us today!