How to finance your small business
There are many ways to finance your start-up or small business. Determining the best financing option depends on your credit score, how quickly you need the cash, and the long-term effects it can have on your business.
1. Bank loans
Start by looking for a bank business loan. Small business loans have specific requirements, conditions, and loan amounts. A credit counselor can look at what you need when applying for a small business loan and help you put together all the paperwork you need. Although the requirements vary, many banks require the following:
2. Loans for small business administration
Another option is a Small Business Administration Loan (SBA). The SBA puts you in touch with a lending partner and guarantees funds up to a certain percentage. Here are three different SBA loan options:
SBA Loan Program 7 (a):
- Maximum loan amount of $ 5 million
- Lenders and borrowers have the option to negotiate the interest rate
- Flexible loan terms
- Useful for business expansion, start-up costs or general cash flow management
- Loan and line of credit options up to $ 350,000
- Fixed or variable interest rates
- Useful for small capital needs
SBA 504 Loan Program:
- Loan amounts vary depending on the project
- Competitive long-term interest rates
- Able to borrow up to 90% of the cost of the project
- Useful for debt refinancing or construction
3. Business line of credit
A the business line of credit offers flexibility. Similar to a credit card, businesses can be given a certain amount of capital based on their credit score and cash flow. The refund is only required at the start of your first drawdown and interest is only paid on the amount you withdraw or use.
If you need quick access to cash for short-term purchases like inventory or higher priced projects, here’s why a line of credit might be the right option:
- Pay interest only on the amount you use
- Flexibility to withdraw money (up to your credit limit) according to your needs
- Repayment terms are usually monthly, but some lenders may allow you to choose your schedule based on your cash flow
4. Small business grants
Small business grants are available for start-ups or existing businesses. A grant is money that does not need to be repaid and can be used to help your business grow or for immediate business needs.
The terms and amount of a grant vary depending on the nonprofit, company, or government agency issuing it. Each grant you apply for has separate requirements and documents. As with any other small business financing option, make sure you qualify for the grant and read the fine print before applying or accepting.
If you are a women, minority or veteran, you may be eligible for more specific business grants. Discover more grants offered by the federal government here.
5. Venture capital
A venture capitalist (VC) is a private investment group that receives a stake in your business in exchange for working capital.
In addition to money, VCs can also provide advice and guidance on starting and growing a business. Venture capitalists are often involved in several emerging companies and have industrial relationships that can help grow your business.
Another option is to use the internet and social media to set up a crowdfunding campaign. You can promote your small business while raising money. People interested in your product donate and help fund your business in return for promotional rewards, equity, or long-term benefits.
Like a grant, there is no need to repay these funds, but your brand’s use of the money must come under the scrutiny of your donors. Unlike other small business financing options, the reputation of your business depends on how you use the money and the overall success of your business.
7. Financing of equipment
You need the right equipment to serve your customers. Equipment financing allows you to purchase the items needed to run and grow your business without affecting your bottom line. Usually, equipment loans finance 100% of the cost of the equipment. The loan may also include additional funds as a buffer for any “incidental costs” associated with the purchase of equipment, such as shipping or materials needed to operate the equipment.
Before signing on the dotted line, you should consider factoring in the functional details in the amount you borrow and the terms of your loan repayment, such as the life of the equipment and maintenance costs.
For informational / educational purposes only: The opinions expressed in this article may differ from those of other employees and departments of JPMorgan Chase & Co. The opinions and strategies described may not be suitable for everyone and are not intended to be advice / specific recommendations for an individual. You should carefully consider your needs and goals before making any decisions and consult with the appropriate professional (s). Outlook and past performance are no guarantee of future results.
JPMorgan Chase Bank, NA FDIC Member. Equal Opportunity Lender, © 2021 JPMorgan Chase & Co.