Are you just starting a business? Do you have a vision for a new company-wide project or initiative that you're desperate to start but don t have the cash? Don t worry. The majority of entrepreneurs and small business owners have been in this position at one time or another. Everyone requires funds in order to purchase equipment, buy or rent space, or grow a business that is already established but needs a little extra assistance. Oftentimes, the money required is far more than a personal credit card will provide. If so, the time has come to seek funding. This can mean a variety of things: going to the bank to ask for a traditional loan, looking into SBA loans, or seeking out venture capitalists or other non-traditional forms of financing, such as crowdfunding.
Traditional financing is typically the first place to start when seeking capital. Starting with your personal banker is a tried and true method for financing many small businesses. Banks are the largest lenders for small business owners, and they offer some of the lowest-cost loans available. Often seen as traditional financing, banks will generally provide an easy and affordable way to acquire the cash you so desperately need. The process for securing this kind of financing is pretty standardized these days, and it usually involves a lender who will delve into your assets, your business plan and your credit history. There is a downside to traditional financing, however. The approval process is often quite complex, and can require a significant amount of time to be approved. It can also be difficult to qualify, depending on your credit and industry. Research shows that about 72 percent of small business owners who apply for a loan are rejected. Banks usually require very strong business and/or personal credit score, as well as healthy business financials and a personal guarantee.
Once you've decided you want to proceed with this traditional route,you ll need to decide where you want to apply for the loan. There are three options: large banks, small banks and credit unions. Smaller banks will often have higher interest rates, but they are more likely to spend the time required to diligently process your application and really work with you to secure a loan. Larger banks, on the other hand,are more difficult to work with in the front end, as their application process is far more rigid, and it largely depends on factors that are more black and white, such as your credit score.
If you don t necessarily want to get a loan from a bank, you can also look into credit unions, which also provide financing on favorable terms. Unlike banks, credit unions are non-profit organizations that are owned by their members. They are usually quite restrictive when it comes to selecting their members, and the requirements often include being residents of a specific area or associates of an educational institution. Because credit unions are non-profit organizations, they are occasionally able to offer lower interest rates than banks,although larger banks often have access to tax advantages and other benefits that a credit union would not be able to provide.
Whether you decide to use a bank or a credit union, these traditional types of loans usually have competitive interest rates compared to alternative financing options. Additionally, traditional loan payments can usually be spread out over several years, which can ease the burden significantly for business owners. Thus, if you and your company have a strong business plan, good credit and the collateral required to demonstrate that you are a low-risk borrower, it is advisable to take advantage of traditional financing options.
Bottom Line:
When seeking capital for your business, traditional funding can be asolid starting point. You can take that to the bank.
Business Capital: SBA Loans | Non-traditional options | Venture Capitalists | Traditional funding
