Types of Small Business Capital

Types of Small Business Capital

Businesses are always looking to grow and expand their operations. Business capital is the lifeblood of any business, but getting it can be tough. The first step in obtaining funding for your business is to determine what type of funding you need and how much money you will require.

Another major consideration is how much you are willing to pay for funding. After all, most money costs money. Some costs of funding are in interest rates. Other costs of funding are in company equity.

This blog will explore various avenues that entrepreneurs can pursue when they are seeking financing for their existing businesses.

Self Funded Business

One of the primary methods that a small business owner can use to finance their business is through personal savings. Business owners should not put too much of their personal assets into a business. Business owners need to have money for their own purposes as well.

You can obtain the capital you need to grow your business by using your own savings. It is important that you keep meticulous records of all financial transactions pertaining to the loan so you can pay yourself back with simple interest.

Friends & Family

Money from friends and family is also known as friend-money or seed money. Friends and family may be a good source for starting capital if they have enough disposable income. Business owners must be careful to repay their friends and family loans with interest.

Business owners can borrow the funds at low rates, but it’s important that they have an agreement in place with their friends or family members containing repayment terms to avoid any misunderstandings about which funds were borrowed. The last thing an entrepreneur wants is an awkward Thanksgiving with rich Uncle Roger.

Funding your business by borrowing from people you know can be limited. Business owners who seek to fund their venture through personal loans from friends or family may not be able to obtain sufficient funding for an entire business startup. Businesses that require large amounts of money upfront to get started will need more than friend-money to get off the ground.

Government Grants

The Small Business Administration has a host of programs available for small business owners. The SBA is an excellent resource to begin your search to obtain a government grant for your business. Business grants are available by the SBA for a variety of purposes including building, equipment purchase and upgrading, working capital financing and to meet a specific public policy objective.

Business grants do not have to be repaid. Grant amounts vary, and so do the allowed usage of funds.
Government Grants are some of the most difficult sources of capital to obtain.

Business Bank Loan

A business bank loan is a common way to raise capital. Business owners can borrow money from a bank and pay it back over time with interest. Getting a business loan from a traditional bank is one of the least expensive costs of capital. Business owners who are looking to expand their business might want to consider this option, but there are some drawbacks.

A hard credit pull is performed on all the registered owners. Business owners may not want to deal with the hassle of having their credit pulled every time they apply for another loan. Loan applicants will also have to jump through various hoops and provide lots of paperwork demonstrating the need for the money.

Collateral is usually required. Banks are not big fans of risk-taking when it comes to business loans. Business owners need to have collateral on the loan if they want to borrow big sums of money.

Businesses can also use other assets as collateral, such as stocks or bonds. Businesses that are seeking small business loans may not have assets strong enough to demonstrate their financial worth.

Business bank loans are best suited for business owners who have strong financials and are seeking large sums of cash for expanding operations.


Crowdfunding is a great option for businesses trying to fund their operations. Business owners can raise funds by asking people with resources to donate money. Businesses can use websites like Kickstarter, GoFundMe, or Indiegogo to raise capital through crowdsourcing.

Crowdfunding is an excellent option for inventors, engineers, and business owners who have come up with an innovative product.

Business owners can take advantage of the vast amount of target market information that can be found from social networking websites. Businesses can post their ideas on sites like Facebook and Twitter and receive feedback from their fans in order to improve the quality of their products.

Businesses should also consider setting up a website where they can provide updates, news, blog posts, and more for interested parties who are following along with your company’s growth. Business owners should make sure that they pay close attention to the quantitative analytics provided by these websites as well as qualitative analytics (i.e., comments made on posts). Business owners should know which methods are the most successful and use this information to increase their popularity and company growth.

Businesses will be able to use this information to further refine their business idea before taking it out into the world for funding.

Business owners can also communicate with investors, similar companies, possible partners, or just about anyone else who is interested in your business before you have a signed contract for funding.

Businesses should also make sure that they are prepared for the possibility of not receiving funds at all.

Equity Investors

A Business owner has many options for obtaining business capital. One option is selling company equity. Businesses can obtain capital through a sale of stock to outside investors, which comes with the disadvantage of giving away part of your company. But it also provides a way to get money quickly without giving up control or other assets, and it might be the only option for companies that are not making enough profit to give up any equity.

Equity sales have become more popular in recent years as small businesses turn to private investors for funds otherwise unavailable from banks. The television show, Shark Tank, has contributed to popularity and awareness to raising capital through selling equity of a business. Business equity sales have started to replace traditional bank loans as a popular way of raising capital.

Business owners are selling securities in exchange for cash or other financial assets, such as equipment, inventory and accounts receivable. Businesses can use the capital obtained by investors to expand physical facilities, increase marketing opportunities and buy new equipment that will improve efficiency and productivity.

Business owners should understand their legal responsibilities before engaging in an equity sale. Business advisors should be consulted when deciding whether the company’s best interests are served through selling stock or obtaining a loan from a commercial lender.

Business owners must decide if they want capital now or if they want a steady source of income, for the long term. Businesses that are looking to expand quickly may find it best to sell part of their ownership and obtain quick cash.

Businesses considering an equity sale should make sure they are not giving up too much in the process. Business owners may want to retain partial ownership or control over key aspects of their business, such as a certain percentage of voting rights.

Private Lending

Private lending is one way to obtain the money you need to start or grow your business in today’s challenging economic climate. Business owners with great ideas and potential but low credit can now seek funding through private lenders.

Private lending is a method of financing where the borrower gets funds directly from private lenders, not banks or other financial institutions.

Business owners who have been turned down by traditional banks should consider applying for private lending. Business is always riskier than other areas where people invest money. Businesses that are less predictable and often need a lot more capital.

Business owners who have difficulty obtaining financing from traditional banks will find that private lenders come in to save the day. Business owners who opt for private lending can also acquire funding much faster than other sources of funding.

Private lending is growing in popularity with lenders and borrowers.

Borrowers are able to obtain funding without collateral or losing company equity. Lenders are able to make returns much larger than they would get compared to keeping their money in the bank.

Business Capital can be obtained in a number of ways, but business owners should consider the pros and cons before making their decision. Self funding your business is the fastest and cheapest option to generate revenue, but there are other ways to obtain Business Capital. Borrowing from friends and family can be a good option, as long as you have an agreement and fulfill it. Government grants do not have to be repaid, but are hard to win. Equity Sales allow investors to purchase a percentage of your business. Private Lending is an option for business owners who have been turned down by traditional banks.
There are many different ways a small business owner can obtain capital. Many business owners utilize a combination of funding sources. If you know how you want to use the funds for, you can make a better decision on what type of business capital to obtain.


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