Financing Options Available to Grow Your Small Business

Arla Wallace is an accounting professional with over 20 years experience. She spent several years working for both publicly-traded and private entities before founding her own business. Today she partners with small business owners so they can focus on operations while leaving the responsibility of staying on top of accounting tasks to her. She is a Certified Public Accountant (CPA) and a Certified ProAdvisor for Quickbooks Online.

Financing Options Available to Grow Your Small Business

Funding is essential in each stage of the business life cycle, but perhaps most important in the growth stage. To achieve success in the growth stage, a small business owner needs access to working capital. During growth, a small business may need to hire more employees, invest in current employees, increase marketing efforts, purchase new equipment, or increase inventory. While there are several financing sources to choose from, it is important to seek funds suited to meet the unique needs of your small business.

Business Credit Card

Perhaps the easiest and most reliable funding source to obtain, a business credit card can help a business build credit if used responsibly. In addition, when short-term, flexible funding is needed to pay vendor invoices or to meet unexpected expenses, a business credit card can be used to cover those costs. Low or 0% interest rates are often available on new business cards. Furthermore, business credit cards often provide rewards to small businesses, including cash-back and travel perks which can be significant if a business is charging a large amount monthly. To avoid interest and other fees, business credit cards must be paid by the due date.

Business Line of Credit

Unlike a term loan in which a business receives a lump sum of funds upon loan approval, a business line of credit (LOC) establishes a credit limit that a small business can borrow funds against. Payment and interest are calculated solely on the funds used. A LOC is beneficial to those businesses that routinely require access to funds to meet short-term capital needs, such as during an off-season or to cover the costs of a marketing campaign aimed at increasing sales. Because interest rates for an LOC are not fixed, expect fluctuations with market conditions.

SBA Loans

The Small Business Administration (SBA) has several types of loans—the most common being the 7(a) Loan. The 7(a) Loan can be used for short and long-term working capital needs as well as to purchase furniture, fixtures and supplies. SBA guaranteed loans are attractive as they generally have lower rates and fees than comparable term loans. In addition, the SBA can guarantee up to 85% of a loan value of less than $150,000. Borrowers of SBA loans must operate a for profit business, qualify as a small business as defined by the SBA, and be engaged in a business in the Unites States.

Venture Capital

When traditional bank loans are not an option, venture capital funding provides financing in exchange for ownership share in your business. Venture capitalists can be a valuable resource to a small business owner by providing guidance and support for legal and tax matters in addition to day-to-day activities. This active support can help a small business achieve growth faster and with greater success. The drawback of this option--ownership control. Depending on a venture capital firm’s stake in your business, there could be a shift not only ownership, but also in shaping the direction of your small business.

These are just a few of the ways to secure capital for your small business. Work with your banker and spend the necessary time and effort to determine the funding option that best meets your business needs.