Businesses today don’t lack options when it comes to financing solutions, but it can be a bit difficult to know which one works best for your specific situation. So, before you start looking, analyze your current situation and forecasts.
Do you really need business financing? If yes, why and how fast? Also, do you have the right qualifications to use traditional funding means, or do you need to find less conventional ones? All these questions and more will provide valuable data that will guide you in the right direction.
And, to give you a bit of a head start, we round up four of the most common financing solutions for small business and startups.
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Financing Solutions for Small Business
1. Investors
Venture capitalists and angel investors are known to support small businesses and startups that show promising features. And while it’s true this usually tends to happen in the tech industry, things are a bit different nowadays.
That’s because technology is quickly infiltrating other fields such as healthcare, biotechnology, entertainment, and so on. Therefore, as long as you have a viable idea and a thorough and well-constructed business plan, chances are you’ll be able to find investors even as a startup.
However, you should also keep in mind that investors also come with a hefty price. More often than not, when you accept investments, you also have to relinquish control and parts of the company, which can be frustrating.
2. Revenue-Based Financing
Startups need to know how fast they spend the funds available in order to know how long they can last before running out of money. This resulting timeline is called a runway and can accurately predict the moment when a fresh influx of income is a must.
For most startups, the runway is a few months long, which is normal when you don’t yet have customers or investors. While this can be scary, it’s also a great tool for budgeting, forecasting, and strategizing. Plus, you know how long you have before finding reliable financing solutions.
One solution is to get runway funding and capital by turning recurring revenue into flexible growth financing. With this type of funding solution, you can preserve the runway and even extend it by spreading out your expenses in order to fit your payment schedule.
3. Traditional Financing Providers
Investors are not the only way to fund your startup; traditional banks are also a great source of funding. Plus, by simply analyzing the offer, you get a clear idea of where your business stands in terms of qualifying for various financing solutions.
Banks offer various funding solutions for small and medium-sized businesses, such as lines of credit, funding for equipment, commercial real estate funds, or credit cards (among others). However, while the interest rates are acceptable, the terms for qualifying are often strict and come with a series of limitations.
For instance, most banks will request a strong personal credit score, experience on the market (at least two years), and a reliable line of revenue. This is why many startups can’t even think about turning to a bank for funds.
4. Crowdfunding
Crowdfunding platforms create a non-traditional meeting place between startups and investors. However, crowdfunding is not necessarily a reliable financing solution for the long term. It is a great option to get an idea off the ground, though.
But you need a product that gathers attention and is intriguing enough to get people interested and excited about investing. Plus, more often than not, you have to work with multiple investors, which can be exhausting, especially for a business that’s struggling to gain some traction in the market.
Find the Right Path for Your Business
Whether you decide to take an investor as your business partner or you’re looking for solutions that keep you in control, the decision must be based on accurate data and analyses. So take a step back and think about your plan for the foreseeable future before making a decision.
