All small businesses face this dilemma at some point—self-funding and initial profits can only take you so far. Investing working capital into your company is necessary to maintain operations, increase employee satisfaction and productivity, and take advantage of growth opportunities. Acquiring that capital can be challenging, particularly when interest rates on traditional small business funding go up, but you still have options. Here are four ways to get small business funding.
Applying for a business loan is one of the simplest ways to acquire a lump sum of cash for your company. For business owners concerned by high interest rates, negotiating for longer terms and smaller monthly payments can ease the short-term financial burden.
Unsecured loans are a desirable option for small businesses because they don’t require collateral. You can apply for these at your local bank or credit union, through an online lender, or with the Small Business Administration (SBA). Assess your financial needs carefully before deciding how much to borrow, especially if interest rates are high.
Business line of credit
A more flexible option for small business funding is to ask for a business line of credit from your bank. Unlike a traditional business loan, you won’t need to take a lump sum of cash all at once. Business lines of credit allow you to draw funds as needed, and you’ll only pay interest on the money you take.
Like business loans, you can use a business line of credit to fund daily operations, invest in new infrastructure or technology, or add more personnel. Also like business loans, a small business line of credit can be acquired from a bank, credit union, online lender, or the SBA.
Venture capitalists and angel investors
A venture capitalist (VC) becomes a business partner when they invest in your company. The terms of that partnership could include equity in the company and decision-making power on your board of directors. Venture capital firms typically control a “pool” of money from multiple investors, so their terms and conditions will be stricter to protect their shareholders.
An angel investor is usually a high-net-worth individual who exchanges their funds for an equity stake in your company. Unlike venture capitalists, they’re normally independent investors representing only their own interests. Some angel investors may want a board seat, but they’re generally a less invasive way to raise capital.
To find a venture capitalist or angel investor, you’ll need to research firms and individuals based on their history and industry focus. You’ll then need to develop and deliver a pitch before negotiating the contract. Many investors in this category can provide multiple rounds of funding, so vet them properly before presenting. They could be your partners for a while.
Online platforms and social networks have made crowdfunding—soliciting lots of smaller donations from a large pool of backers—an increasingly popular method for acquiring business funding. Common examples include Go Fund Me, Kickstarter, and Indiegogo.
The crowdfunding space is saturated, so it’s important to differentiate your company from others competing for those same funds. Show proof of your market viability in your pitch, offer incentives for investors, and use social media to increase your visibility.
How to determine which type of business funding is right for you
Determining which type of business funding is right for you involves weighing the costs versus the benefits of the funding source. For example, is giving up a majority stake in your company worth the increase in profitability you’ll get from VCs? Are you willing to pay high interest rates now for a loan or line of credit, or should you wait until rates go down?
When considering VCs or angel investors, consider the size and corporate structure of your company. For example, a sole proprietorship can’t take on venture capital investors without incorporating and creating shares to distribute equity. Larger companies already incorporated may be restricted by corporate bylaws from offering equity to new partners.
Need funding to grow your small business? Apply for a Bluevine Line of Credit.