What are the most popular sources of financing for SMEs
Boost your business with SME financing
Money is to a business as oxygen is to a human, without their respective items each will cease to exist. That being said, there are many different routes taken for a small or medium enterprise to raise capital or find financing for something as simple as painting the officer or updating technology. While many reading this likely know various options, this article will go into each methodology a little more and explain how each method can help your business.
First, depending on the need of your business you can turn to friends and family. This can prove beneficial because you are less likely to have to produce financials and other information to obtain lending. Depending on the amount, you may need something as simple as a document stating the terms of the agreement. Utilizing this source of financing can be a quick and easy fix to a small cash flow pinch.
With the evolution of finances, credit cards have become a quick way for businesses to loosen up cash flow constraints while earning rewards for their spending. There are several different credit card options on the market and if you are looking to purchase tools or other minor items, this can be an effective route to take. However, don’t let your balances stay to large because interest rates may be higher than average and this can be detrimental long term to your cash flows.
Another popular source of funding is through a financial institution. This methodology provides you with stable loan details and future payments that can be planned for into the future. There are several different types of business loans and odds are there is one to fit your needs. One of the few drawbacks includes need business information and for small business, it may not be in depth enough for a financial institution to lend. However, should you qualify this can be an effective road to take.
Similar to the lines of the business lending, you and your small business can look into taking advantage of a conventional loan. In context, this is potentially loan that is taken our in your name, rather than the business, in hopes of obtaining financing and at a lower rate. The drawback many face is the need for a high credit score and a detailed financial history. If you can meet those criteria then a conventional loan may be a sound option. Benefits include lower interest rates and loan terms that are favorable.
If you find traditional methods proving to be difficult, look to the masses and begin funding through crowdfunding. This is when you open your business to the public and offer something in return for people who pledge money to start or grow your business. Kickstarter is the most popular name on the market and this platform allows you to begin the process of crowdfunding. Keep in mind though, with crowdfunding you are delivering a future promise for money in return. Should you fail to deliver it can be costly to your brands image. However, this method not only opens up an avenue for funding, but also allows you to interact with your clients.
Last on our list are investors, which not only brings with it money but potential knowledge in the industry. Many times, small businesses will look to investors to raise capital and in turn, sell out ownership of their company. One of the benefits if your investor could become your business partner, adding value to your brand. As you can assume, one of the drawbacks does include selling part of your company, but this is only a drawback if you aspire to retain 100% ownership.
These are some of the most popular methods on the market for SME’s and it is up to you to find what works best. You may find reaching out to potential investors to be beneficial over traditional lending, but no matter your case, there are several sources of financing available for your small to medium business.