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New Small Business Financing Ideas

New Small Business Financing Ideas

Starting a new small business requires a lot of work and planning to be successful. Part of this planning means obtaining financing for business operations including purchasing inventory and equipment, hiring employees and renting a space. Most small businesses fail in the first year because they don't have adequate financing. Being thrifty and smart will go a long way toward alleviating stress and ensuring success when starting your new small business.

Spend Smart and Save Big

The most important aspect of financing a new small business is being judicious with limited financial resources. If you obtain a $50,000 loan, don't immediately go out and spend it on a fancy retail space and high-end computer equipment. Making every dollar count by stretching them to the limit will go a long way toward keeping your business solvent and getting through tight times. So what are some ways you can spend smart? Many tech companies have started out of a family garage or a bedroom not in use. Not only does this save on rent but it can also cut down on gas and transportation expenses. Due to the high failure rate of small businesses, you can often acquire used business furniture and office equipment at rock-bottom prices. Don't buy something new unless you absolutely have to.

Home Equity Lines of Credit

If you own your home and have a significant amount of equity built up you can always use a home equity line of credit to finance your small business. This can be an excellent way to obtain access to $50,000-$100,000 at a very low interest rate and then pay it back monthly out of your operating expenses. A second mortgage is also an option as it will provide a lump sum amount for small businesses that require a large initial investment. While not as flexible as a home equity line of credit, it might be more appropriate when purchasing equipment or leasing a space. HELOCs are nice because they allow you to write checks up to an approved amount so you only need to take out in financing what you need to get the business started.

Borrow From Friends & Family

Entrepreneurs with a large circle of friends and family can often receive personal loans with good interest rate terms. People who care about you and your success are willing to do what they can in your time of need. Not only do they provide financial support for your new small business but they also provide emotional support and guidance for free. Don't underestimate the power of having friends and family backing your small business. Keep in mind that these are personal relationships and if the business fails you run the risk of damaging these relationships. Always be open and honest about your expectations and have a plan for success to protect those individuals who believe in you.

Apply for Grants & Loans

Depending on your desire to fill out paperwork there are many government options available when seeking financing. Minorities and women often have access to government grants specifically tailored to their needs when starting a small business. State governments also have grants available to support specific minority groups when seeking small business financing. Keep in mind that seeking grants are a highly competitive endeavor and the paperwork involved can be lengthy and detailed. The Small Business Administration also has significant resources available both online and at SBA facilities. The SBA not only provides training and guidance but also low interest loans for small businesses. In fact, the SBA has backed over $40 billion in loans and is one of the largest providers a small business financing.

The Final Option: Credit Cards

As a last resort, a new small business can be financed using credit cards. This is a highly risky maneuver and ideally will not be necessary if other forms of financing can be obtained. Many companies have been started using credit card financing and if you have enough available credit it might provide what you need for starting your business. Keep in mind that the interest rate will be significantly higher than a typical small business loan and monthly payments can easily spiral out of control.

Image by: Corey Holms