How To Raise Finance For Your Small Business or Startup With Loans

SME Finance, Trade Finance, openbusinesscouncil.org

SME Finance, Trade Finance, openbusinesscouncil.org

How To Raise Finance For Your Small Business or Startup With Loans

Starting up a business is a great idea, but the capital to start with may sometimes present a number of challenges. It’s important to know that small businesses at their start need a bit of strong capital that will help support them and build a foundation that will proof to be fruitful in future.

The SME finance gap and the full trade finance cycle is often described as the “Missing Middle”: as alternative finance and micro finance institutions are starting to provide capital for SMEs, microenterprises with fewer than five employees. Small and medium-sized companies, usually defined as companies with up to 250 employees, are stuck in the middle. This is an enormous problem, because the vast majority of all firms world-wide are SMEs – up to 95%, according to some definitions.

200 million small businesses globally are unable to get credit, source World Bank

200 million small businesses globally are unable to get credit, source World Bank

The good news is that closing the SME credit gap should be a win-win for everyone and new solutions are out there if you look at it..

A lot of potential business owners are lacking the capabilities to source funds to sponsor their projects – be it from investors or personal funding, in order to enable expansion of the business. However, one of the best ways that seems feasible is through business loans, with loans one can have all the funds needed for a start-up. In this article, we’re going to look ways potential business owners can raise funds through loans.

Understanding The Idea For Small Business Financing

The phrase “small business financing” refers to as the finance provided at an early-stage, young, or infant business investors to help them further their business output in terms of projects, cover cost as well as funding for other ventures. Small business funding is really a good idea, because it gives the opportunity for small business owners to have enough of capital needed to improve the output and productivity of their businesses over a period of time.

However, it’s important to know that the best way of funding for a start-up is through self-funding, because there are lots of risks involved on borrowed funds from friends, family, banks, as well as close relations. Moreover, in comparison to bank loans, personal funding is considered a safer way of funding for start-ups because it has no impending pressure on a profit share with a third party investors and it’s a good idea if small business can have a little capital to start with. 

How To Raise Finance For Your Small Business or Startup With Loans, openbusinesscouncil.org

How To Raise Finance For Your Small Business or Startup With Loans, openbusinesscouncil.org

Ways To Raise Finance For Your Small Business Or Start Up

It’s important to understand that, there are several ways one can adopt in order to get funding for his or her business start-up with loans. We shall be looking at some of them below.

  • Financing through secured loans

Financing a business through secured loans is one of the most common loan systems exiting in the business environment. Before a lender gives loan to the borrower, an agreement will be made and valuable assets of the business owner will be listed (as collateral) when applying for the loan. The reason for this is that, in case the borrower is unable to repay the loan after the repayment period has elapsed, his or her assets may be forfeit as repayment for the loan. In this aspect, a long repayment period is normally given to enable the borrower utilize his business opportunities and source for fund to repay before that period.

  • Financing through unsecured loans

The unsecured loan type of small business funding does not require the business owner to produce any collateral when applying for loan. However, there is a higher interest compare to other forms of loan system. If the business owner thinks he/she can survive to the high interest rates, then they can go for it.

  • Financing through bad credit loans

Bad credit loan type of financing is an opportunity given to business owners who have a poor history of credit to secured loans to fund for their investments. However, there is always a risk involve in this type of loan, and lenders usually have higher interest rates in case of uncertainties.

  • Small business loans for women

It’s important to know that, some financial and non-financial institutions have deemed it fit to give women the opportunities to become great entrepreneurs in the society. By that, they provide special loans for them to enable them grow their business to another level.

Things To Consider When Financing For Small Businesses Through Loans:

  • Consider your ability to repay the loan amount at the agreed period.
  • Know about how long it will take the loan to be fully repaid.
  • Negotiate or consider the realistic rate which you will repay.
  • Some lenders will require you to have collateral before giving you loans; in this case, you are to consider your strengths and assets before opting for a business loan.
  • Think about the effectiveness or the good side of your credit report.
  • Get all the required documents handy before applying for business loan.
  • Have a good business plan.
  • And some other important things that can help.