financing a business

Financing Options for Small and Medium Businesses

A lot of business owners borrow loans to fund their businesses and startups. There is no surprise there. Small businesses try to keep the cash flow coming to run smoothly. So, obviously, there’s no shame in borrowing money for your business.

Borrowing money is part of what you are doing. You have to run your business. It is part of business growth. If you are starting or financing a business, lending money is the best option for cash flow

We know that most of you probably don’t actually own a large company which is gearing up to compete with Amazon. It is small business owners who make a difference. Small and medium enterprise owners usually look towards banks to secure loans.


7 Options For Financing a Business

We will look at some small financing options for your business:


1. Traditional Bank Loan Option

If you want lump sum cash, conventional bank loans are better. Most of the time, there is no need for collateral. Payback time, in this case, is fixed. Interest rates will not bother you much. They will be fixed when you borrow money. Also, your monthly repayments don’t change. Normally, you have to pay back the amount in 7 years’ time. 


2. Short Term Option

You can also choose to borrow a short term loan for fewer interest rates. When your business is in need of quick cash flow which will recover in less time, this option is better. You have to pay the money back in 1 year to 5 years. Interest rates on this mode may vary. The short-term option can help you with credit scores if you are a small business owner and keeping up with the repayment timeline.


3. Online Platforms for loans

Yes, we know that you are ruling out this option before hearing it. But the fact is that there are some groups who are giving a bad name to the online loan market. There are some websites that are loan sharks with fancy adverts.

Also, there are some credible mediums of online lenders that may give you some great options. Some banks also give online loan options. Online loans may help improve credit scores. 

4. Equipment and Machinery Financing

If you are remodeling, replacing your machinery, or buying a new unit, you can get a long-term loan. The loan plan for equipment is quite easy. You don’t have to worry too much about Equipment loans repayments. You will be able to structure them as a term loan. Their repayment plans are more friendly as compared to traditional ones.

In the UK, you can get tax breaks if you go for the Enhanced Capital Allowance option. This may be the option if you are replacing your equipment for environmental purposes. You can get the funding for the purchase of the machinery. You may have to meet some conditions for it. To get it right you should hire an accountant

If you are financing a business to update the machinery, you can also get some reliefs from HMRC


5. Online Peer-to-Peer Lending Platforms

It is closely related to crowdfunding. In Peer-to-Peer lending, the borrower doesn’t get the part of the business. In this mode, the business owner lends money from a peer.  

In Peer-to-Peer lending the lender will get the cut on your profits. Because he is taking all the risk for you. The lender is actually putting his money on the line and he expects a return on his investment. You may want to be wary of interest rates. In this case, they are relatively high. 

You have to trust your internet skills. There are websites that provide a platform for Peer-to-Peer lending. Some famous websites include lending works and rate-setters.

You can join the website as a borrower or a lender. The websites have software to determine the borrower’s credit rating.


6. Option for financing a business

If you are investing in a startup and falling short of your initial cash target, you can get the finance from some nonprofit lenders. Community Development Finance Institutions don’t require much collateral. Your credit score is important in order to secure the loan. Even if you have a bad credit score. CDFI sometimes listens to your reasons.


7. Grants and Awards

The most competitive and ‘ are hard to get’ are the awards and grants. This is ‘free’ money that you can get to kick start your business with an effective plan. The cool thing about the grant is that you don’t have to return the money. That’s the reason everyone wants to secure a grant for their business plan. The competition for even the most generous grant programs is so high.

You may think of the government offered grants. But they are not the only one. Many organizations, non-profit organizations and companies extend some generous schemes. You can win hundreds of thousands if you put up your case right.

The requirements are different for different groups. You have to put in extra work to secure the awards. The application process may be lengthy and tiresome, but worth a try.

Don’t mix the idea of a grant with any contest or paid competition. If someone is charging you to enter the competition, then it is not a grant. You should not pay anything in the form of an entry fee or some other fee. 


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