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Small Business Funding Options: Best Funders for SMEs

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What are the Different Options for Funding a Business?

It takes money to make money, and this couldn’t be more true than in business. Whether you’re building a company from scratch or you’ve been running it for years, having adequate capital is crucial. No matter how well your company performs, at some point, you’ll need to consider outside funding.

Before you start exploring your options, you need to do some research. Here are some of the essential things you need to know when it comes to small business funding.

Signs You Need Small Business Funding

How do you know when to start looking at funding options for your business? It’s not always an easy question to answer, as it depends on many factors, such as your financial standing and business performance. 

However, all business funders agree that if your company can’t achieve essential business goals or functions due to lack of funds, it’s time to look for more funding. Examples of these goals include business expansion, increased staffing needs, preparing for peak seasons with more inventory, or simply paying overhead like rent or payroll

When in doubt, it’s often better to seek additional funding options well in advance. That gives you more time to weigh all the factors and find the best funding option for your situation.

How Much Funding Do You Need?

The worst thing you can do is to seek small business funding options with nothing but an estimate in mind. You’ll end up over-borrowing and overpaying interest.

To figure out precisely how much you need, you have to arm yourself with data. Review your company’s performance and do a forecast of your revenue for the next few quarters, preferably with a knowledgeable accountant. Through this process, you’ll be able to better identify how much you need, and more importantly, how much your company can afford to pay back.

Beyond this, you should also look at how you’ll be using the money and the expected return. Will you use the cash infusion to hire more staff? And if so, how much additional revenue do you expect to earn? All of these questions help you sift through the many company funding options and find the right one.

What Are Major Funding Options for Small Businesses?

Once you have an amount in mind, it’s time to explore the different small business funding options available to you.

First, you should start with the money that you already have. You can try dipping into your savings and using some of that to fund your business. It’s easy and doesn’t involve asking for help from others, but unless you have a substantial amount, it might not be enough.

You can also try asking family and friends. However, not everyone is willing to risk their relationships for funding, which can happen if the investment turns sour and you’re unable to pay them back.

Once you’ve exhausted your personal money and contacts, it’s time to venture outside your network. This includes financial institutions like banks and lenders, as well as individual investors. You can even tap your customers or followers through crowdfunding campaigns, where people fund ideas that they believe in.

What are the Alternative Small Business Funding Options?

When people consider funding, the first thing that comes to mind is a bank loan. Banks do offer higher borrowing amounts and decent interest rates. However, applying for a bank loan can take some time and effort. You need to convince the bank to grant you the loan, and there’s no guarantee that you’ll get approved.

Bank loans are the standard way of securing funding, but that doesn’t mean it’s your only option. 

One alternative is your credit card. It’s the easiest and most accessible source of funding, but it also carries higher interest rates and lower borrowing limits. For smaller, urgent expenditures, though, they can work fantastically well.

There are also third-party lenders like L3 Funding, which give more flexible cash flow solutions at better rates.

Additionally, you can find outside investors like angel investors and venture capitalists to infuse cash into your business, in exchange for equity. It can be a great option since you won’t need to repay them in cash, which can help with your cash flow. However, the disadvantage is that you’re essentially giving up partial ownership of your company.

Lastly, you can consider grant and loan programs from government entities like the Small Business Administration (SBA). We’ll get to that next.

How the SBA Can Help

The SBA is a federal agency that helps entrepreneurs with low-cost, long-term, guaranteed business loans. The agency itself doesn’t provide the loan; instead, it helps connect owners with the financial institutions that do. 

The SBA also has several investment programs that provide SME funding options and other types of business support. The Small Business Investment Company (SBIC) is a collection of privately managed funds that make investments in qualified small businesses. For SMEs that focus on research, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are good opportunities.

Need Capital Today? L3 Funding Can Help!

L3 Funding provides a wide variety of funding solutions like small business loans, lines of credit, and merchant funding. We offer flexible repayment schedules, high loan amounts, and fast turnaround time. Contact us today to learn more.