Need funding to grow your business? Here are five of the most common ways small businesses seek funding, and the pros and cons of each.
Chances are, in the earliest days of starting your business, growth was the farthest thing from your mind—you were busy finding customers, marketing your services, and just trying to make it all work.
Once your operations stabilized, however, you probably started thinking about next steps. How do you take what you’ve started and make it better? How should you adapt based on what you’ve learned about your market? How can you fill the gaps you’ve discovered in your process? And then there’s the big question: how do you expand?
The answers to these usually come down to money. It takes a while for most businesses to become profitable, and many entrepreneurs put off a growth strategy until they feel they are financially comfortable. But opportunity has a cost, as well.
What are your business financing options?
Here are five of the most common ways small businesses seek funding, and the pros and cons of each:
1. Self-funded. The self-funded startup has a firm place in entrepreneurial history. Many successful businesses have been started by borrowing against the equity of one’s home, savings portfolio, and even 401(k).
Pro: You clearly understand the assets you’re offering as collateral.
Con: You could, of course, lose the assets if you fail to repay the debt.
2. Traditional bank loans. Your local bank might be your first and last stop for financing your business. Many banks offer products specially tailored to small businesses, and they’re packaged in ways that are similar enough that you get decent competition among them.
Pro: Your bank already knows who you are, and vice-versa.
Con: Red tape, typically—complex application processes, underwriting churn, and funding delays.
3. Short-term business loans. Alternative loan providers, and the online business funding marketplace in particular, has blossomed in recent years to embrace new products and cast a wider net of qualified recipients. QuickBooks Capital, for example, offers QuickBooks customers fast access to flexible funding, with a simplified application process.
Pro: Fast, flexible access to working capital for a variety of business purposes.
Con: Interest rates are generally higher than traditional loans, so use this option strategically and use a lender you trust.
4. Personal loans. Got friends or family members who are willing to help you out? That can be a good route, but you’re still best served to make everything official. Sign a promissory note that clearly spells out the repayment terms—it will help you in the long run.
Pro: Making your financial case to loved ones can be less harrowing than making it to a bank.
Con: Formal agreements seem awkward, but they’re the safest way to keep relationships intact.
5. Creative alternatives. There’s no shortage of ways to obtain funding if you’re diligent and know where to look. Venture capitalists and so-called “angel investors” still look for solid business plans to earn their investment. If your business supports it, you can also try the approach of pre-selling your product in advance of your actual business launch. Relatedly, many startups have turned to crowdsourcing in recent years—sharing their business idea with the world at large in order to attract customers and investors who believe it to be promising.
Pro: It’s a wide open playing field—your range of options is practically unlimited.
Con: It’s a buyer-beware market—tread carefully with any unproven methods you undertake.
What are your next steps?
- Create your business plan and budget.
- Check your personal and business credit scores to know where you stand.
- Shop for the product you want.
In particular, if you opt for a short-term loan, go with a lender you know and trust. QuickBooks Capital understands the variety of options available to small businesses, because QuickBooks has historically staked its reputation on helping small businesses succeed. With our short-term small business loans, we aim for ease and transparency, and we streamline our process to help you access the funding you need, when you need it—no origination fees, no prepayment penalties, and no surprises.