Key Types of Finances to Consider for Your Business in 2020

Businesses, large and small, need some financing to grow and achieve their financial obligations. That’s why lots of companies opt for at least one or a combination of financing options, especially when starting out. However, it can be somewhat challenging when settling for a financing option given the types of finances to choose from.

In 2019, about 43% of American businesses took out loans and those businesses performed marginally better than their counterparts who financed themselves. So next time you want to forgo business financing consider this tiny fact.

If you’re stuck choosing a financing option from the many types of finances, then worry not. In this piece, we’ll highlight a couple of solid financing options you should consider for your business.

Amazing Financing Options to Consider for Your Business

It’s no secret; a business needs cash and lots of it to start on the right foot. You can broadly classify business finances into two categories: debt and equity. Debt is synonymous with external financing, while equity is the value of your business after liabilities.

Here are types of finances for your business:

1. Savings

The first way you can finance your business is by using money from your own pockets. It is the easiest and least complicated method for funding your startup. Ideally, you’d save money for a given time, and once you reach your target, you get your business off the ground.

Most people don’t consider savings as a feasible financing option for their business. First, because they may not make enough to allow them to save for a business. Also, it may take ages to save a significant amount to start a business.

Saving to start a business is always a great idea, but you need a lot of discipline to save. If you have limited income and discipline isn’t your forte, then you might want to consider the other types of finances.

2. Family and Friends

Family and friends are a great way to supplement your saving efforts so you can get your business going. Sometimes only funding from family and friends is enough to start your business or to handle various finances.

In most cases, you’ll have to give the concerned family and friends business equity. However, you can also choose to pay them back with time, especially for small amounts to run usual business activities.

The problem with getting funding from friends and family is that you might acquire some unwanted partners. Even if you don’t give them formal equity, some of them may want a say in company affairs. This makes it really difficult to run your business, and it could also tarnish the relationships between you and them.

3. Credit Cards

You can’t use credit cards to start a whole company, but they are great for financing minor business operations. You can use your credit cards to make payroll, pay suppliers, or other small business needs.

Credit cards are a great funding method because it’s easy and convenient. However, keep in mind that your credit card links directly to your credit score, and missing a single payment could significantly hurt your credit score.

Credit cards are especially ideal if you qualify for a 0% APR credit card. This means you can make payments from the credit card with zero-interest on charges. However, you need a good, if not exemplary credit score to qualify for a 0% credit card.

4. Angel Investors

Groups of individuals or executives who invest in businesses for equity are known as angel investors. This name is quite fitting because, for some business owners, these angel investors are sent from heaven.

Angel investors offer much more than just funding for your business. If a group of executives invest in your business, they might provide valuable advice on how to streamline operations and increase profitability.

The downside with angel investors is that they are tough to find. Angel investors need to find promise, stability, and potential growth to invest in your business.  It’s thus hard for startups or struggling companies to get funding from angel investors.

Also, tread softly with angel investors. If you aren’t too careful, you may end up relinquishing a considerable chunk of the company’s ownership to these investors. To sidestep this, hire a professional to crunch all the numbers, then you’re good to go.

5. Business Loans

If your business is struggling financially, then the bank can help you out of the sticky fix. Banks and other financial institutions are the go-to places for business loans. However, getting a business loan from a bank isn’t very easy.

That’s because you must meet very steep requirements to qualify for a bank loan. You also later have to worry about interest costs, which could be a substantial amount if you take too long to repay the loan.

5. Factoring

Factoring has gained traction in business over the years for all the right reasons. Factoring addresses the cash flow problems that may be hindering company operations. Factoring involves handing over your accounts receivables to a third party, usually at a discount.

Some factoring companies may also finance your business from legal compensation. This truck accident lawyer will show you exactly how that works.

However, factoring may not be such a foolproof funding alternative. For factoring companies to buy your accounts receivables, the receivables must come from reputable companies with good credit or government clients.

6. The SBA Microloan Program

Most of you are already familiar with SBA loans, but may not know the SBA Microloan program. SBA guarantees up to 85% of loans their lenders issue. The SBA microloan gives small business loans of up to $50,000 to expand their businesses and for other reasons like working capital and purchasing equipment and machinery.

Consider These Types of Finances for Your Business Financing Needs

No funding option is best-suited across the board, so you have to find a funding option specific to your own business. Hopefully, that will be easy since you’re now acquainted with the many types of finances your business could opt for.

Keep in mind that some funding options have strict requirements, and you may not qualify for them. Also, while you get financing for your business, have a solid plan in place on how you will pay back if you settled for a loan.

There are tons of other insightful articles on our site you can check out to expand your knowledge.