Is the Bank the Best Place to Get A Business Loan?
Starting a small business means you will need to have capital. The most common way to get that capital in the past is a small business loan from a bank. But with emerging fintech start-ups seeking new funding methods, does that really still hold true today? Let’s examine some of the best ways you can get the money you need for your small business in today’s economy.SBA Loans
The U.S. Small Business Administration offers a microloan program of $50,000 for small businesses. The average SBA loan is around $13,000. These loans are typically offered to people with credit scores of 720 or higher. The funding provided here also may not be sufficient for your start-up needs. Most SBA loans go to established businesses that can provide collateral in the event of a default. Qualifications for the loan are strict, and the whole process can take several months to complete. SBA Loans are great for those who qualify, but what about those who don’t? The good news is that loans can also be secured online.
The peer-to-peer economy has changed the way some people raise capital for their business ideas. Microloans are small loans that are issued by individuals rather than a bank. Often these loans are compiled from an array of small-time lenders who contribute a portion of the final goal. Most microloans go to people in third-world countries, but that is not always the case. Platforms like Lending Club and Kiva offer peer-to-peer lending for both investors and those who need start-up capital. Most microloans are not backed by collateral, which can make them a risky investment. Many lenders often only invest a small amount per borrower.
Crowdfunding is another popular way for small businesses to raise money through sites like Kickstarter and Indiegogo. These sites don’t require an investment to be paid back like micro-loans. Instead, you give loyal backers gifts. This type of fund-raising is often used to produce a product to sell. Many video games and board games have been successfully kickstarted, with rewards to backers a copy of the finished product. Rewards crowdfunding means your backers have no equity in your company, which makes it doubly attractive.
Equity crowdfunding also exists on smaller platforms. Tapping into a pool of investors who agree to finance your business venture for a stake in ownership has risen in popularity. New securities regulations have allowed small business owners to contact small-time investors about their opportunities.
Government agencies and private foundations offer small-business grants in a variety of fields. These grants are highly competitive and are not always easy to get, but they can provide free capital. The U.S. military offers small-business grants for veterans. Some grants are even available for women who want to start their own business. If you decide to go down this path, be prepared to do lots of research. Matthew Lesko’s Free Money books are a great resource to start since these books compile many grant opportunities for which you can apply.