Starting a small business is expensive, and chances are, your personal savings won’t cover it. Instead, if you’re like many businesses, you may need a little extra help from an outside source.
Thankfully, there are numerous effective ways to fund small businesses. Whether you’re open to taking out a small business loan, opening a line of credit, or applying for a grant, you have several options to receive the funding you need to get your business off the ground.
Read on to learn our six ways to fund your small business.
Apply For a Grant
Grants are essentially free money that you can use to fund your small business. While these funds can sometimes be challenging to acquire, as they have specific eligibility criteria, they’re worth a shot if you need significant funding.
For example, the National Association for the Self Employed offers grants that small business owners can use to fund marketing, recruitment, advertising, and expansions. Meanwhile, the Small Business Innovation Research Program provides grant money for research and development projects.
You can learn more about grants you may qualify for through the U.S. Grants website. This site categorizes grants by state and purpose, allowing you to browse ones available in your area.
2. Apply For a Business Loan
One of the most popular ways businesses receive funding is through traditional small business loans such as this . You have several options when it comes to these loans:
- Small Business Administration loans: The Small Business Administration offers several loan programs to business owners in the U.S. For example, the Microloan Program can provide small business loans up to $350,000 with low interest rates.
- Bank loans: You can also consider applying for a small business loan through a bank. These institutions often set funds aside specifically to lend to small business owners.
- Small business lending fund: This government fund provides small business loans through lenders in each state. You can find out more about this program on the U.S. Treasury website.
Of course, the interest rate you will receive on your loan depends heavily on your financial history and business credit score. If your business is new, you probably won’t have a business credit score. Instead, lenders may look at your personal credit score.
Financial institutions use your credit score to determine the risk of lending to you. The lower your score, the riskier the loan, leading these institutions to charge you a higher interest rate. Some lenders will not loan business loans if your credit score is too low.
As a result, keeping your credit score in a good range for businesses can help you save money on business loans, contributing to your profitability.
3. Open a Small Business Line of Credit
A line of credit is a flexible loan that you can borrow on an as-needed basis. Most institutions that offer lines of credit provide a maximum borrowing limit, such as $50,000. Then, if you need $1,000 here or there, you can borrow it against this line of credit and pay it back when you can, rather than needing to borrow the entire sum at once.
You can start an equity line of credit with a range of financial institutions. Like business or personal loans, these lending options also come with interest rates.
However, lines of credit typically have lower interest rates than lump-sum loans. They also tend to have flexible repayment schedules, making them wiser for businesses with fluctuating incomes.
Lines of credit are typically better for ongoing expenses than one-time large purchases. We recommend using a line of credit to supplement your monthly income as you get your business going, then turn to business loans for more significant expenses.
4. Take Out a Personal Loan
If you can’t qualify for a small business loan, you can also consider taking out a personal loan to fund your business. Most lenders allow you to use personal loan funds for any purpose, including business expenses. However, you’ll want to double-check a loan’s terms and restrictions before borrowing it for business needs.
Unlike a business loan, a personal loan is for you individually, not your business. As a result, lenders will review your personal financial history and credit score to determine your eligibility and rates.
However, because a personal loan will be in your name — not your business’s — you’ll personally be responsible for paying it back. This means that even if your business is not performing well, you’ll need to come up with the money to make your monthly payments.
Personal loans can be an effective alternative for those who cannot receive business loans, but we recommend reviewing them carefully before accepting them.
5. Use a Business Debit Card
You’re probably already pouring a decent chunk of your savings into your small business. Using a business debit card and savings account can help you maximize cashback and benefits to support your business.
For example, Nearside offers a business debit card that provides 2.2% cashback on all business expenses. You can connect your savings account to this card and use it to earn a little bit back on money you’re probably already spending.
Cards like Nearside also include other perks, such as discounts on products or services that could be helpful for your business. All in all, we recommend using one of these cards for business expenses that come out of your pocket.
6. Look Into Peer-to-Peer Lending
If other loan options haven’t worked for you in the past, you may want to consider peer-to-peer business lending. In peer-to-peer lending platforms, individuals, wealth advisors, and alternative asset managers lend funds to businesses without using a middleman. As a result, they often have lower interest rates and more flexible terms than bank loans.
However, because peer-to-peer loans are not FDIC-insured, they come with some risk. You’ll want to review your loan terms and conditions closely before accepting to minimize risk.
Altogether, taking out a business loan, opening a line of credit, or using any of the other methods above are excellent ways to receive essential business funds. Funding your business through one of the above options can give you the leeway you need to maximize growth and jumpstart your success.