Financing a Business: The Different Ways Explained

Starting a business is a hard task for anyone, but when it comes to financing a small business, it’s nearly impossible.

According to the Small Business Administration (SBA), it is estimated that around 80 percent of small business loan applications are rejected. 

So what other financing options do you have as a business owner?

Keep reading this comprehensive guide to discover your options when it comes to financing a business. 

Savings

This may seem like an obvious option for some, but if possible, financing your business with personal savings can save you much needed time and money in the long run.

In a perfect world, entrepreneurs would save the necessary money and fund their business themselves, but we don’t live in a perfect world, and money doesn’t grow on trees.

Other possible options for using personal savings include:

  • Retirement savings
  • Life insurance policies
  • Friends and family
  • And home equity loans

This is a risky option for some as you risk the chance of your business failing and leaving you with nothing. According to the Bureau of Labor Statistics, about 2/3 of companies survive at least two years, and about half survive at least five years.

Credit Cards

Depending on how much funding your business needs, using a credit card could be a great way of financing.

If you are looking for a smaller amount of money and don’t plan on using it for a longer time, you can consider using a credit card.

The downfall of using credit cards is if you don’t pay it back in time, late fees and interest can crush you.

Business Loans

If your business qualifies for a business loan, then, by all means, this is one of the best types of finances for small businesses.

The problem is banks are very particular when it comes to who they lend money to and have strict lending criteria.

You will have to have good credit, a solid business plan, and assets that will be used as collateral. 

Business Equipment Financing

When it comes to acquiring tools and equipment for your business, it can get very costly.

With business equipment financing, you can set your business up for long-term success by leasing equipment.

Through leasing, you still get all the tools and equipment your business needs without having to put the house up for sale to pay for it. You will have much more manageable monthly payments and can feel peace of mind knowing your equipment is modern and up to date.

Angel Investor

Finding an angel investor is easy. Convincing them your business will grow and become profitable is not. Angel investors are wealthy individuals who invest money, and sometimes their time and expertise in growing companies.

Recruiting an angel investor is an entrepreneur financing dream as they have most likely been through it before and can provide experience to help you overcome challenges in the industry.

Other Options for Financing a Business

Financing a business is a daunting task for some, for others its as easy as walking into the bank and applying for a loan. Your business deserves the funding it needs. If your first option doesn’t work out, don’t give up, there are plenty of other options you can seek out.

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