What are financing options?
Most small business owners need a little help in getting their entrepreneurial dream started. You need to know how much money you’ll need in order to get your business off the ground as well as sustain its growth once it is up and running. Unless you plan on putting your own personal capital into your start-up, you may want to learn about available financing options. Do not believe the infomercials and internet scams that promise you free grant money. Grants are not given to those looking to start a for-profit business. Most businesses are financed either by debt financing or equity financing.
Debt and Equity Financing
According to the Michigan Small Business Technology and Development Center, “debt financing is offered by banks and lenders. Lenders give you a sum of money (loan), which you must repay, with interest, over a certain time period. Debt financing can come by way of a term loan, where you withdraw an amount of money and repay it monthly until it’s repaid in full. Another way companies can borrow money is through lines of credit, which are similar to a personal credit card. A limit is established and the business borrows money needed to help them through seasonal ups and downs, and the money is repaid shortly.”
Equity financing is “provided by private investors who then become part owners of the company and are entitled to a share of the profits.”
Most lenders expect to see that the business owners are meeting at least 20 percent of their financial needs. This means that you need to have money saved up before approaching a lender. Remember, having good personal credit will be important when looking toward ways of financing your business concept.
Small business funding sources include the owner’s personal wealth, banks, credit unions, angel investors, partners, family and friends, SBA loans, and venture capitalists.