Sources of Funding — Part IV

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Sources of Funding — Part IV

Although your local bank may be your first instinct, there are many pools of money available for your small-business loan. Depending on the amount you need, the following are a few sources to consider:

• Credit cards: Normally the easiest way to get a loan. Borrowing from your credit card is an expensive, but effective, way to get money fast. Be sure to check out rates before you consider using your credit card for a large loan. Most credit cards offer a low introductory fee, which could save you significant sums, but the interest charges do add up if you take a while to pay down your balance.
• Family and friends: Hitting up your family and friends for money is the oldest routine in the book. Although the rates may be good, a smart business woman must consider what this type of loan will/can do to her personal life. Are you going to end up hiding in the corner at every family function while your Uncle Leo harasses you about your $1,000? If the answer is yes, please consider other forms of loans.
• Personal savings: Borrowing from your own savings is one type of loan to consider. Of course, it’s fast, and you don’t need a credit check! However, don’t dip too deep into your savings, as no one can afford to be without retirement and emergency funds. Think about your future. What is likely to happen? What can possibly happen? Do you have the funds to cover an emergency situation? If the answer is no, consider leaving your funds in the bank.
• Bank loans: Bank loans are the most traditional form of loans. Receiving a loan from the bank can be time-consuming, but you can negotiate an attractive interest rate on your loan. By borrowing from a bank, you can develop a relationship that will enable you to borrow money as your business grows. Banks will require you to disclose your credit history, as well as documentation on your business. Different banks offer different interest rates on loans, so be sure to shop around before deciding which bank to get your loans from. Similarly, if you get turned down by one bank, don’t fret. You could receive money easily from another bank around the corner.
• Angel investors: Angel investors, sometimes known as seed investors, are people who provide money to companies when they are first getting their business started. Although most angel investors are also friends and family, there are pockets of wealthy individuals who are experienced and willing to lend money to small businesses as well. Most angel investors also take some form of ownership over the company in return for their investment.
• Strategic partners: Often, receiving money from key suppliers or customers can be a smart way to get a loan. First, you have secured a business relationship with a partner that has a financial interest in seeing you succeed. Second, the industry knowledge and contacts that can be provided by these strategic partners could help you get off the ground.

Continue to: Part V: Qualifications and credit history

In this course, we will cover the following: