Business, Personal Finance

How to obtain business funding to keep your operations stable

get business funding

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This guide outlines methods to raise business funding when you need to increase your financial stability.

Businesses solely depend on one thing to keep themselves afloat: money. It’s surprising how quickly a company can go under simply because they don’t have enough funds. For new business owners, it’s not uncommon to have difficulty keeping up with inventory costs and rent. However, there are ways for you to acquire the money you need to keep your business financially stable.

Ways to get business funding

In this article, we’ll be covering ways you can get business funding for your small business.

A business loan

Whenever a business needs to procure some extra funds, the first option is to take out a business loan. This loan can only be used for business-related purposes. To be more precise, it only covers things such as renovations, implementing new equipment, and paying your current staff members. You can take this loan out from a bank, credit bureau, or a private lender.

We recommend lenders for new establishments that can offer their borrowers reduced interest rates to get business funding. Having lower interest rates makes the loan much easier to pay back over time. These loans can come in a whole range of sizes and potentially give you a more manageable payment schedule going forward.

Line of Creditc

A line of credit is classified as a type of loan, but it functions more like a credit card. Rather than be given a lump sum of money, you’re eligible to a designated amount of capital that you pay off on time. LOCs are used to fund any short-term needs. To qualify for a business line of credit, you’re going to need the following to get business funding:

  • Collateral, which is used as security
  • At least six months to a full year of being in business
  • Your credit score at 600 or higher
  • An annual income of at least $30,000 though this depends on the lender

There are two types of LOCs you can get; secured and unsecured. Both functions more or less the same with the only difference being the assets you need to use as collateral. Secured LOCs demand specific assets, like your inventory for example, while unsecured don’t require anything concrete.

Crowdfunding

Even though you seek to be your own boss, it’s not a bad idea to bring in some outside support. If you have an amazing idea and want a way of advertising it to the masses, then crowdfunding is a great idea to get business funding. Crowdfunding is a fundraiser-like event where a product or service is advertised and people donate an amount of their choice to the project. Sounds easy enough, right? But the thing is that you really need to know what you’re doing beforehand. You can’t just showcase a product and expect hundreds of people to donate at once. Whatever you’re planning needs to be laid out in a way where it’s enticing and that it’s worth investing in.

So, presentation is extremely important when you choose to crowdfund. Furthermore, there’s one type of person you want to try to attract: an angel investor. An angel investor is a person who generously donates a large amount of money to a cause they believe in. Angel investors can donate $15,000 to as much as almost $300,000.

Credit for working capital

This is an interesting financing option for small and medium-sized companies that need resources to pay the day-to-day expenses of the business – the so-called working capital loan.

In this method, the entrepreneur does not need to present the purpose of the loan at the time of application to get business funding. In addition, you can choose to pay bimonthly, semi-annually or in full after the end of the contract.

It is worth remembering that this type of credit is interesting for short-term demands, considering that the average installment term is usually 12 months. It is possible to contract the credit directly at the financial institution in which the company has a checking account or at companies specializing in business credit. In any case, it is always valid to compare the interest rates and conditions offered.

Peer to peer financing

Another financing option for small businesses to get business funding is peer to peer (P2P), a line of credit that has been gaining popularity in recent years. This option connects borrowers to investors through digital platforms.

In this way, it is possible for investors – who can be individuals or legal entities – to lend money directly to the company, and the operation does not depend on the mediation of a financial agent.

In this case, the verification of the risk involved in the operation is carried out by the platforms, which check the financial profile of the person who will take the loan. Each investor can provide the total or partial amount to be borrowed, which also allows for the sharing of the risk of the operation.

Prepayment of receivables

This type of online loan allows the company to receive profits in advance to get business funding. The process is usually less bureaucratic and is used by entrepreneurs who do not yet have working capital.

As this credit anticipates payments that the company will already receive, the future payments themselves act as a guarantee, which is reflected in lower interest rates and cheaper and more accessible credit. On the other hand, this is a short-term alternative, indicated to cover more urgent business expenses, and should be used sparingly, so that the company’s cash flow is not harmed.

To apply, just look for a financial agent that offers this credit alternative, such as banks, finance companies, factoring companies (commercial development companies), credit rights investment funds, credit card operators and credit fintechs . specialized.

Credit unions

Credit unions offer credit products similar to a common financial agent, such as credit cards, financing and working capital loans, with the objective of promoting regional development through the community’s own interest.

To guarantee credit, it is necessary to be part of the cooperative and purchase a quota, as well as participate in decisions in assemblies as a member.

Microcredit

Microcredit is a type of loan for individuals or micro-entrepreneurs who want to open or expand a business . The modality is aimed at formal entrepreneurs – such as individual microentrepreneurs and legal entities – and informal ones, who do not have easy access to conventional loans or credit.