Are you just starting a business? Do you have a vision for a newcompany-wide project or initiative that you're desperate to start butdon't have the cash? Don't worry. The majority of entrepreneurs andsmall business owners have been in this position at one time oranother. Everyone requires funds in order to purchase equipment, buy orrent space, or grow a business that is already established but needs alittle extra assistance. Oftentimes, the money required is far morethan a personal credit card will provide. If so, the time has come toseek funding. This can mean a variety of things: going to the bank toask for a traditional loan, looking into SBA loans, or seeking outventure capitalists or other non-traditional forms of financing, suchas crowdfunding.
Traditional financing is typically the first place to start whenseeking capital. Starting with your personal banker is a triedand true method for financing many small businesses. Banks are thelargest lenders for small business owners, and they offer some of thelowest-cost loans available. Often seen as "traditional financing,"banks will generally provide an easy and affordable way to acquire thecash you so desperately need. The process for securing this kind offinancing is pretty standardized these days, and it usually involves alender who will delve into your assets, your business plan and yourcredit history. There is a downside to traditional financing, however.The approval process is often quite complex, and can require asignificant amount of time to be approved. It can also be difficult toqualify, depending on your credit and industry. Research shows thatabout 72 percent of small business owners who apply for a loan arerejected. Banks usually require very strong business and/or personalcredit score, as well as healthy business financials and a personalguarantee.
Once you've decided you want to proceed with this traditional route,you'll need to decide where you want to apply for the loan. There arethree options: large banks, small banks and credit unions. Smallerbanks will often have higher interest rates, but they are more likelyto spend the time required to diligently process your application andreally work with you to secure a loan. Larger banks, on the other hand,are more difficult to work with in the front end, as their applicationprocess is far more rigid, and it largely depends on factors that aremore black and white, such as your credit score.
If you don't necessarily want to get a loan from a bank, you can alsolook into credit unions, which also provide financing on favorableterms. Unlike banks, credit unions are non-profit organizations thatare owned by their members. They are usually quite restrictive when itcomes to selecting their members, and the requirements often includebeing residents of a specific area or associates of an educationalinstitution. Because credit unions are non-profit organizations, theyare occasionally able to offer lower interest rates than banks,although larger banks often have access to tax advantages and otherbenefits that a credit union would not be able to provide.
Whether you decide to use a bank or a credit union, these "traditional"types of loans usually have competitive interest rates compared toalternative financing options. Additionally, traditional loan paymentscan usually be spread out over several years, which can ease the burdensignificantly for business owners. Thus, if you and your company have astrong business plan, good credit and the collateral required todemonstrate that you are a low-risk borrower, it is advisable to takeadvantage of traditional financing options.
Bottom Line:
When seeking capital for your business, traditional funding can be asolid starting point. You can take that to the bank.
Business Capital: SBA Loans | Non-traditional options | Venture Capitalists | Traditional funding
