Let’s say you’ve been thinking about turning that side hustle of yours into a full-fledged business, but there’s one thing that’s stopping you. It starts with the big, fat, letter F. You need “funding.”
Launching a business is no small task. Gaining access to the right kind of funding can mean the difference between a great idea written on a napkin and a company with repeat customers.
Today, more women are starting businesses, but they often do so with less capital than their male counterparts, according to a 2014 study by the National Women’s Business Council. The good news is there are a variety of financial resources available for female-run small businesses.
These funding options span the trajectory of a company’s lifespan, so no matter what stage you are in your business plan, you can find something that works for you.
Just remember that receiving approval from financial lenders is always easier when you have good credit and some steady business revenue. Factors like your cash flow, credit history and collateral coverage will affect a lender’s ultimate decision, Jay DesMarteau, head of regional commercial specialty segments at TD Bank, told US News & World Report.
Here are four small business funding options that should definitely be on your radar.
Small business loan
While there are no small business loans available specifically for women entrepreneurs, you can always look to general small business loans to help fund your startup idea or grow your existing company. These loans can be used to buy your inventory, furnish office space or pay for your marketing.
Under the umbrella of small business loans, you’ll find term loans. These are lump sum loans you pay over time that provide capital for you to work with. Usually, you’ll be able to get a more favorable interest rate and offer with a traditional brick-and-mortar bank. Just expect to have more requirements to fulfill.
Nervous about getting the bank to approve you for a small business loan? Look to alternative lending as a funding source. Alternative lending refers to loans that fall outside the realm of traditional banks—meaning you’ll likely be dealing with online-only banks.
These online lenders typically aren’t as strict with their applicant requirements. Since the process isn’t as complicated, you can usually also gain quicker access to capital. The downside? They will usually come with higher interest rates. These online loans are often viable options for people with poor credit, those who haven’t been in business very long or those who need access to capital asap.
If, however, you’re in the very early stages of your startup and have good credit, consider getting a personal loan for business. These loans are usually unsecured and are good options for those in the transition from a side hustle to a full-blown business.
The Small Business Administration is a government agency that’s been around since the 1950s and it provides one of the most popular kind of business loans: the 7(a) loan program. An SBA loan is an ideal option for a business that’s been open for two years or more and has some solid finances.
Under the program, the SBA guarantees between 50 to 85 percent of an eligible bank loan. This makes it an enticing offer for lenders who look favorably on applicants when there is less risk involved.
As another bonus, you can expect a lower interest rate and a longer period to pay it off. The downside? Expect a lot more paperwork and for the process to take some time. (This is the government after all, and they’ll want to make sure your company is on solid footing before they secure your loan.)
Business line of credit
Consider getting a business line of credit if you’re looking for a way to cover smaller expenses on an as-needed basis. Think about it much like a debit card. You can utilize it whenever you have to fill in a gap in cash flow or purchase smaller inventory items. The way it works: A lender will approve you for a set amount of funds. You can then draw from for purchases, and you’ll be charged credit only on the amount used. You can then make regular payments to the lender and can keep using your card so long as you don’t go over your limit.
Your credit score will matter here (like it does with regular, personal credit cards). So, your interest rate and overall limit on the card will depend greatly on your credit score. (If you need help on how to raise it, we’ve got you covered.)
Microloans should be on your radar if you’re looking for less than $50,000 in funding. You can’t use microloans for purchasing real estate for your business. But, you can utilize them for almost anything else like working capital, furnishings, equipment or inventory. Microloans are great options for businesses that don’t require a lot in up-front costs and are just getting started. Though, we’ll note you will likely face a slightly higher APR.
They’re also a good stepping stone for a company that’s looking to establish a positive business credit rating. As pointed out by Forbes, if you pay off these microloans, you’ll set your company up to receive funding on more favorable terms in the future.