Find the cash flow to start your dream — and keep it running.
Entrepreneurs start off with a dream they want to capitalize on. And to transform their ideas into real innovations, they need more than persistence and diligence — they need dollars and cents.
To jumpstart your entrepreneurial financing, you will need to tread down the traditional path of taking out a loan or using credit. Here are 3 common financing options to consider:
- Line of credit
Want to buy cooking supplies for your bakery? Or need ink, paper and other business supplies for your office? In these cases, it could be helpful to tap into a business line of credit. Similar to how a credit card works, a line of credit is a short-term financing option that enables entrepreneurs to make purchases. The Small Business Administration (SBA) has revamped its CAPLines program to aid more small businesses who need revolving lines of credit. But avoid keeping a balance.
BizBest.com suggests paying off your debt periodically to keep your credit in good standing with your lender.You can get a line of credit from most major banks and credit unions. Read the SBA.gov’s blog on how to apply.
- Term loan
Let’s say you need 20 new industrial dryers for your laundromat, but you don’t have the cash in hand to make the purchase. Term loans are a good option for larger purchases, such as equipment, that you’ll need to pay back over a longer period of time.Getting a term loan can be difficult if you are a startup or if your finances are fragile. Lenders often require a sizable down payment, collateral and strong financial statements, according to Entrepreneur.com. They want to make sure your company is fiscally fit so you can make the payments. So if you can push past those hurdles, you can position your business to perform more efficiently and even expand your operations. (Some people use this loan to acquire other companies.)
- SBA loan
The Small Business Administration offers several types of government-backed loans for new and established small enterprises. These loans are a popular option for small business owners who do not have any collateral — to qualify, you can’t have any other assets that can be used toward your business — and typically offer a longer loan term, have no prepayment penalties and are fully amortized. While the SBA does not provide direct loans (your bank still needs to approve the loan), it works with local lenders that participate in SBA programs. Common SBA loans include those for startups, disaster assistance and military veterans. Browse the full list on the SBA.gov webpage. Also, be sure to follow the SBA’s loan application checklist when applying.
Whether you’re a startup shop or a longstanding small firm, raising capital is specific to each company. Make sure to estimate your startup costs such as license fees, inventory, office equipment and rent. Once you tally your cost and examine your credit options, look into these 5 tips to avoid financing blunders from Entrepreneur.com.