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How to Choose The Right Small Business Funding Option

Starting a small business is not just about bringing creative ideas to life. It is also important to get initial funding to use in starting your entrepreneurial journey. You will need raw materials, equipment, and manpower allowance to get your business started.

When choosing the right company to acquire working capital loans for small business, choose the company that’s beneficial for every aspect of your business. There may be a lot of financial terms that you could find too confusing. We have put it out simply for you.

What is the cost of funding your business?

 

There are many ways you can get funding for your business. You can categorize your business funding options in two ways “debt funds” or ‘equity funds”.

Debt Funds. You borrow money that you will eventually pay up with a certain percentage and in a specific time frame.

Equity Funds. You sell partial ownership of your business in exchange for funds.

Intensity of Funds

You must be able to determine the “intensity” of the prospective funding companies. Intensity is how the loans for small business owners can affect the different aspects of the business. It is mostly considered the cost of capital. Some debts are not as harsh on you as others. It means you are comfortable with the given schedule of repayments and the percentage added.

There are two factors that determine the intensity of funding

  • difficulty of getting the funds
  • the overall cost to your business.

The relationship between the two factors is inversely proportional. When one goes up, the other goes down.

Low-Intensity Funding

Low-intensity funding is difficult to obtain but low cost to your business. It usually takes longer to process the application but the interest rates are lowest.

  1. You go through a lot of paper works
  2. Extensive application process
  3. Your business tax returns
  4. Cash flow details
  5. Low-interest rates
  6. Flexible repayment schedule

Businesses that fall under this category have profitable future income projections. They can provide sufficient records of positive cash flow.

For example, you own a bakery. As the business owner, your needs may include a new and bigger oven, a few additional bakers or improvement of the storefront. You can make a solid case with these shop enhancements. You’ll be able to return the borrowed funding from small business loan companies. If you can prove that you are a low-risk borrower, you can be a candidate for low-intensity funding. Provide them with collateral and comprehensive financial records to prove your credibility.

High-Intensity funding

Under this type of funding, you will receive quick funding for small business. The funding companies for small business will release the money in less than a week if you have completed all the requirements. Because it is easier to get, it also comes with a hefty price.

  • Business Credit Card
  • Lending App
  • High-interest rates or in actual equity in your company

 

Businesses that fall under this category have indefinite future financial projections. A tech startup has an unclear road to profitability. Banks hesitate to lend them the funds when they can’t see the cash flow or how they could get their money back. In this case, you can qualify for a high-intensity funding like a credit card. It is easier to get approved but you will need to pay a higher interest. You can also offer equity to your investors who can support your efforts as you try to improve and build your product.

The easier and faster you got the business loans for small business, the higher the interest rates. The more difficult and challenging is the process of getting a business line of credit, the lower are the interest rates.

Which Intensity of Funding is Right For You?

The funding companies for small business will determine if you qualify for the loan. The most important question you need to ask yourself – when will you be able to repay the debt or provide investment profit to your investors?

How to Choose a Small Business Funding Option


In finding the right online small business lenders, there are questions you need to ask yourself to determine the right small business funding option:

  • What is your business goal – do you want to accomplish a short term or long term goal?
  • How much money do you need to accomplish your goal?
  • When will you be able to start paying the loan?
  • Are you willing to provide your company shares to others?

When you have figured out what you need and the time it will take to use the money to increase cash flow, you can now consider your options.

 

Fast Business Financial allows you to determine the right funding suitable for your business growth. Call our hotline (866) 277-2907 and talk to our loan specialist or submit the online application today!

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