How to Finance a Business

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There are many ways to creatively and traditionally finance a business. Traditional financing often requires a longer amount of time to be processed and approved, but it may yield a better interest rate. Creative financing can usually be completed within a short time frame, but it may come with a higher interest rate. Read on to learn how to finance a business.

  • Get a loan. The Small Business Association (SBA) can be a great source for financing a business. This will require more time, energy and paperwork than most other sources of funding. You will need to have a well-written business plan and your financials in order. Most SBA loans require a set percentage of the total loan amount as a down payment.

  • Utilize home equity. If you are a home owner, you may be able to use the equity in your home to finance a business. This option often allows a tax deduction on the interest you pay. Some people are able to use a home equity loan or line of credit as the down payment needed to secure an SBA loan. Just remember that you are in essence risking your house if your business fails and you cannot repay the loan or line of credit.

  • Find people-to-people lending. Many websites host listings that allow personal investors the ability to finance your listing. If enough investors are willing to provide funds, the website will broker a deal between you and the investors. Family members or friends may also choose to provide financing for your business without the use of a website.

  • Use investment financing. Venture capital firms, angels or a business partner all offer investment financing. Not only can this be a lengthy process, it might require that you give up a percentage of ownership to the investor.

  • Use credit cards. Depending on the amount of financing needed for your business, you may be able to use credit cards. This option should only be considered if you are willing and able to pay high interest rates.

  • Sell your future sales. If you have been in business for a set amount of time and you accept credit cards, you can apply for a cash advance on your credit card sales. This can be accomplished in a short time frame, but often requires that you change merchant processors and pay a higher interest rate.

Tips & Warnings

  • Consider using a combination of options to achieve your financing goals.
  • If you have established business credit, you may be able to obtain financing from your business without using your personal credit.
  • Personally review, or have an attorney review, all financing documents to avoid hidden costs and fees.

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