A failure rate of 18% for businesses in their first year and 50% after five years is bleak, but it doesn’t have to mean the end for your business. If your business is struggling, don’t give up hope. Sometimes all a failing business needs is a little cash infusion to cover some upgrades.
If your business is struggling to keep its doors open, you may need a cash infusion. A cash infusion for a business is when it receives a large sum of money, typically from an external source. This money can be used for a variety of purposes and to stay afloat. Here are some of the most common sources of funding for businesses you can consider.
Personal Loans
Personal loans are unsecured, so taking out a personal loan does not require collateral like a house or car. This makes personal loans riskier for lenders, and as a result, personal loan interest rates are usually higher than secured loans. However, if you have good credit and can get a low interest rate on the loan, personal loans may be worth considering for your business funding needs. Since it is a personal loan, you can use it freely, too.
Business Loans
There are two main types of business loans: secured and unsecured. The interest rate on a loan depends on whether it is secured or not, with the latter usually carrying lower rates. If you can get a business loan with a low-interest rate, it could be a good option for funding your venture.
There are multiple loans available for small businesses in the United States. The most well-known source is probably the Small Business Administration (SBA), which offers a variety of programs, including:
- The 7(a) Loan Program allows small businesses to grown and succeed by providing them with the financing they need through a general business loan. This money can then be used for things such as buying equipment or inventory, debt refinancing, or other various business purposes.
- The 504 Loan Program allows small businesses to purchase commercial real estate or machinery and equipment with a loan that is backed by assets of the business, making it less risky for lenders and resulting in lower interest rates.
- The Microloan Program from the SBA is a great way for small businesses to get started. With loans up to $100,000 and no collateral required, this program can help your business get off the ground quickly.
Home Equity
Home equity loans enable people to gain money from their home’s value instead of using it as a mortgage. Many times, these funds are used for repairing the house or paying for renovations, but some entrepreneurs use this method to finance their business ventures.
Some small business owners opt for a home loan against their house’s equity instead of business loans. Home equity loans are chosen by entrepreneurs usually if their credit history is lackluster, they’re just starting up their company, or need immediate access to cash.
The downside to taking out an infusion in this manner is that you may lose your home if you can’t repay the loan. Additionally, it’s not ideal to mix business and professional finances.
Home Equity Lines of Credit
A Home Equity Line of Credit (HELOC) offers borrowers an opportunity to access cash as they need it, up to a set limit. This flexible option allows people to keep their interest payments low by only borrowing—and paying interest on—the amount of money they actually use from the line of credit, rather than the full amount the lender is willing to provide.
The benefits of HELOCs are that you don’t have to borrow more money than you currently need and can take out funds from your HELOC several times. However, the drawback is that since you’re borrowing against your home’s value, if you cannot repay what you owe, then you could lose your house.
Investors
Your business could potentially be funded by investors—specifically, debt or equity investors. Debt investors essentially loan money to your business which must then be paid back with interest. On the other hand, equity investors provide monetary absorption for your company in exchange for a partial ownership stake; usually meaning they’d have more funds than debtors, but also seek higher returns on their investment overall.
Here are some equity investors that you can approach for financial aid:
- Friends and family
- Angel investors
- Venture capitalists
Crowdfunding
In crowdfunding, many people donate money to an individual or corporation so that they can achieve a common goal. Oftentimes, this method is used to finance brand new undertakings such as opening up a business or creating a film. Although it may seem counterintuitive, giving potential investors the opportunity to invest in something they’re passionate about often leads to success. With that said, other conditions for your campaign’s triumph are dependent on numerous factors including: the viability of your initial enterprise idea; steps you take towards realization; communication with alleged backers; perks/returns offered in exchange for investment; and finally how you go about marketing both the venture and the fundraiser itself. So far, only about 22.4% of all crowdfunding campaigns have been successful.
Final Thoughts
There are a variety of ways to finance your small business, and each has its own set of pros and cons. It’s important to weigh the options carefully and choose the one that best suits your needs. No matter which path you decide to take, remember to always stay mindful of your budget and make sure you can afford to repay any loans or investments. Good luck in revitalizing and growing your small business!