If you want to grow your small business, there are several lending options available. We’ve reviewed some of the most popular ways to fund growth and explored the pros and cons of each. Be sure to do your homework to find the best financial fit.
Credit cards provide easy money for entrepreneurs. Compared to a bank loan, the process to get a card is fast and easy. Ideally, every small business owner would secure a 0% APR credit card and pay off the whole balance within the 12-month interest-free promotional period. Realistically, using a card and failing to pay off the balance each month is a recipe for financial disaster. A big advantage of using credit cards for business expenses is being able to maximize reward earnings. Another perk is that using a credit card responsibly will help build up your credit score, vital for getting affordable funds down the line. However, be careful. If you do get stuck paying high interest debt, consider cheaper loan alternatives to consolidate and pay the cards off.
P2P personal loans
Peer2Peer lenders bring borrowers and investors together via an online platform. Borrowers provide basic information and say how much they need to borrow. Individual investors decide whether to fund the loan. P2P loans are like ordinary loans with interest rates and payback schedules. Although innovative, Peer2Peer lending is not the most affordable. APRs can range from 14 % to 19 % to even higher. Banks and SBA loans are considerably cheaper.
Crowdfunding allows startups to reach out to lots of potential investors at once. Kickstarter and Indiegogo are two of the most popular platforms. There are lots of pros to crowdfunding like saving time and money, giving you access to capital and establishing a fan base. However, the cons are many. Generally, folks like to invest in a product or an idea that is consumer friendly so if you have a B2B business, you’re probably out of luck. Additionally, some crowdfunding platforms only release funds from your campaign if you achieve 100% or more of your goal. Failure to reach your goal could mean that you get zilch. The average successful crowdfunding campaign is around $7,000 so if you need more, you might be out of luck.
Federal, state and local governments offer a wide range of grant programs to help small businesses start and grow their operations. Business owners turn to grants because they are not required to pay them back. But they come with stipulations. Also, understanding and navigating the grant process can be complex. The SBA has a Loans and Grants Search Tool that can help you locate a program that’s a fit for your small business. It should be noted that most small businesses do not qualify for government grants.
Do-it-yourself, also known as bootstrapping, is an option for entrepreneurs until other methods of funding become more realistic. The main reason small businesses bootstrap is to keep debt low. You’ll avoid high interest rates and monthly payments that come with loans or investors. Of course, funding your business can be stressful. Be sure you have a solid business plan and consider working with a mentor who can help you keep an eye on the bottom line.
The U.S. Small Business Administration’s flagship 7(a) loan guarantee program is so popular that the federal agency was forced to suspend it after it ran out of funds in July 2015. Congress quickly raised the guarantee limit for the current fiscal year to $23.5 billion.
Getting an SBA loan was known to be a tedious process that can take months. However, online lenders like SmartBiz are streamlining the process and making it much easier for small business owners to qualify and get funded.
SBA loans are the best bet for small businesses who want to grow their business. SBA loans offer the lowest monthly payments, rates and have no prepayment penalties. A small business should always check out the SBA loan first since it’s the cheapest capital and only explore other loan options if they don’t qualify.
Find out in 5 minutes or less if you’re qualified for a low-interest SBA loan from SmartBiz here. Once qualified, a dedicated SmartBiz representative is available to guide you through the process and answer any questions. SmartBiz SBA loans loans have a low fixed rate and a term of 10 years. Small business owners can use the funds in a variety of ways including hiring more staff, paying off existing high interest debt, buying equipment or ramping up marketing efforts.