Businesses need a healthy amount of working capital or “start-up funds” to help them grow. Having a solid plan for access to these funds ensures your business will not only get its feet off the ground but also thrive during times of rapid growth or unexpected plateaus.
There are two common methods to fund a business: equity investment and leveraging capital.
The key difference between equity investment and leveraged capital for a business owner lies in whether or not the capital is expected to be repaid. Whenever a structured lender is involved, you are leveraging capital in order to advance your business.
Here are some options to consider when looking to access capital for your new or expanding business:
Equity Investment Options:
Many business owners opt to fund their businesses themselves. By using savings or personal debt, or liquidating assets, you can potentially secure funding without involving the business entity.
- Friends and family
Friends and family can help fund a business quickly and with little to no downtime for getting started. However, while good intentions may fuel the decision to want to help, owing money to friends and family can take its toll on relationships.
- Angel investors
These people are typically affluent, private investors willing to invest in businesses. Occasionally, these investors will require ownership equity in return for capital.
Depending on your partnership agreement, taking on a business partner can diminish your control of your company and the ability to make autonomous decisions.
Leveraged Capital Options:
- Conventional Bank Loans
Conventional commercial lending is dependent upon the creditworthiness of the borrower, business, and the specific interest of the individual bank or financial institution.
- SBA 7(a) and 504 Loans
Small Business Administration (SBA) loans are a good choice for new ventures and small- to medium-sized businesses offering long-term amortizations and competitive rates. Requirements and qualifying factors may be more particular than traditional loans.
- USDA B&I (Business & Industry) Loans
The USDA offers a loan guarantee program designed to assist businesses in obtaining needed capital to create and grow jobs. Businesses must meet USDA-specific geographic eligibility requirements.
- Community Development Centers (CDCs)
CDCs can be a source of funding for business owners who may not otherwise be able to secure funding through a bank or financial institution.
When deciding that obtaining leveraged capital is the best option for you and your business, make sure to enlist the help of a professional who has your best interest in mind. The loan process can be daunting for any beginner, and even for business owners who have been independent for years. The job of a loan specialist is to simplify this process, make you comfortable and confident in your decisions, and help you achieve your goals.
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