The need to raise cash arises frequently in a small business environment. Cash flow is often tight, and expenses may arise unexpectedly, necessitating additional funds. Consequently, understanding your varying loan options is essential for sustainable funding. Fortunately, there are indeed quite a few loan options that can be useful for small businesses.
Asset-based loans are often a quick way to raise needed cash — provided you have a valuable asset to put up as collateral. These types of loans are lent solely on the collateralized value of the asset in question, making them often quick to secure, and not particularly restrictive about use.
This said, defaulting on an asset-based loan can be very costly, and may lead you to lose a valuable piece of equipment, real estate, vehicle, or something else that you have put up as collateral.
SBA loans are essential for a small business owner. These loans, while lent through private financial institutions, are partially backed by the federal Small Business Administration, making them particularly attractive to entrepreneurs. Although they require extensive documentation and a long application process, they can be quite useful for small business owners.
As an added bonus, there are a number of different types of SBA loans, used for distinct purposes. These include 7(a) loans, CDC/504 loans, lines of credit, disaster loans, and more. They have unique purposes — for instance, some are often employed for purchasing owner-occupied real estate. Reviewing the range of options for SBA loans can be very useful for a small business owner.
Venture Capital Investment
Venture capital financing is increasingly useful for new businesses. Under this type of financing arrangement, wealthy investors or funds will typically invest substantially in a new enterprise, often in exchange for a partial ownership stake in the business. If you are in the right sort of industry, venture capital can be a great way to raise funds. However, it does require conceding some degree of ownership, which may be anathema to some business owners.
Private loans from wealthy individuals are always something to consider for small businesses. If you have a source, a private loan can be an effective way to raise funds to individually negotiated terms. Be cautious with any private loan, though, because these tend to be less regulated than other types of loans.
Ultimately, there are many ways to secure funds for small businesses. The options above may be helpful as you work to arrange financing.