When thinking about financing a small business most people automatically think of bank loans, but that’s just one option. These days, there are a variety of possibilities available for funding your business. If you’re in a similar situation as described by Eric Goldschein, where you’re growing your business out of a coworking space, or even your home, then you’re probably interested in the methods at your disposal which will allow you to expand. So, let’s go over five smart tips you can use when looking to finance your business.
Avoid Expensive Credit Costs
Business loans can provide you with the financing required when you’ve used up your savings or you’ve repurposed them for other things. One thing to keep in mind is that the total annual cost of borrowing is called the annual percentage rate (APR). This factors in both interest rate and other fees, like origination fees and monthly maintenance charges. US News explains how APR generally applies to Small Business Administration loans, term loans, and business lines of credit, among others. Additionally, unsecured loans will generally have higher APRs than secured loans, so it’s prudent to research the loan best suited to your business needs. In one of their guides to basic finance, Marcus explains the importance of comparing loaning agents based on APR or annual percentage rate. Considering the APR is important, and from where you borrow can also be a factor. For instance, small business loans from online lenders will typically cost more than a bank loan and may include other fees and charges.
Go for Grants
Before you think about loans that will cost you, think about a free way to finance your small business. Grants can be an ideal way to fund your small business and can also provide you with networking opportunities. Although they can be highly competitive and somewhat limited, grants don’t cost you a thing. Well, except the time you’ll require to put in a good, competitive business proposal. Fundera co-founder and CEO, Jared Hecht explains that grants are essentially free money. Grants are available through the U.S. Small Business Administration via their State Trade Expansion Programs or women’s organizations like the National Association of Women’s Business Owners. Other state organizations also provide grants for minority-owned businesses, so check your local community.
Keep Your Expenses to a Minimum
While starting up your business it’s advisable to keep your fixed expenses as low as possible. This includes both your personal and business expenses. Being an entrepreneur means you’ll need to tighten your belt and cut costs wherever possible. This means keeping your bills low and your expenditure to a minimum. Anything from smart meal planning, to avoiding spending money eating out, to refinancing loans and consolidating debt to save on monthly payments, are good ways to keep your personal expenses low. Meanwhile, on the business side, fixed expenses include everything from rent, taxes, debts, utilities and other operating expenses. Therefore, Medium recommends setting aside a year’s worth of savings for your large expenses, as it can help reduce your financial burden down the line.
Make a Cash-Based Budget
Especially during the early stages of starting your business, it’s a good idea to understand your strengths and weaknesses and have enough capital to keep it going for at least the first few months until you start seeing some profits. In this sense, Scott Bishop of STA Wealth Management suggests to his clients that they create a cash-based budget and projection. Bishop explains that while many Americans invest in 401(k)s or IRAs, many will also dip into these investments and use them as a funding source for their venture. This is generally not a good idea as you could run afoul of regulations governing tax-deferred investments and ultimately incur penalties.
Technology is your best friend as it can help you work more efficiently, keep costs down and attract customers. From planning and tracking your time on a mobile device to more efficiently coordinating with clients, small business owners can find significant value in keeping track of where their time is spent. It will not only make you more productive but will also make your projected estimates more accurate. Another way to use technology is to market your business online. If you haven’t yet promoted your business online, The Balance Small Business says that you are missing the potential of fast-paced, high-result and low-cost marketing. Tools like Facebook, Instagram, and Twitter, for instance, are low-cost marketing tools that allow you to join business communities or even create a community around your business to help attract customers and finance your venture.
exclusively written for hannahgrimes.com
by Jayden Shaw