Many small business owners were forced to shut their business down or operate with a limited capacity because of the COVID-19 pandemic. Depending on the type of industry, it can more than 5 years to recover the losses.
If you are in need of additional funding during this time, you are not alone. Many small business owners are in the same situation and many financial providers are doing what they can to help. Learn about the different options available to you so you can secure the working capital to help you get through these tough times.
Short Term Loans
One of the most common ways to get funding as a small business owner is with a short-term loan. These terms can be set for 1 to 3 years and start as low as $2,500 and can go up to $500,000. Short term loans are great to cover basic costs immediately but anticipate growth and profitability in the long run.
The pandemic demonstrates how short-term loans can help small businesses. When the pandemic subsides, the business owner can pay back the loan with the profits that are earned.
The interest rates for short term business loans start at 8%. Depending on the terms and business credit, you might have flexibility with your monthly payment and length of the loan. This allows you to pay it off sooner with the right financial planning.
Business Credit Cards
You can also use business credit cards during these times to increase your financing options. This works similarly to a personal credit card. You can get approved for a credit limit and pay off the balance monthly.
Credit cards are a flexible way to get funding for your business but there are some limits. You may not be approved for a large amount which limits your chance to make bigger investments. You could also have some vendors that do not accept credit card payments. This means that you would need to rely on additional streams of income.
It is important to that you pay off your business credit card every month on time, or else you will accumulate high-interest debt. This can make it difficult to pay back as the interest compounds. You will need to pay the interest on this debt, which will drive your operating costs up and limiting your credit options until your liabilities are reduced.
Additional Investments
There are other ways to get funding for your business that does not require working with a bank or a credit provider. You can get funding with the help of private investors who will write you a check after you agree on payment terms.
You can find investors in your community by asking friends and family to help support your business or you can meet with a professional investor. If you meet with a potential investor, you need to come prepared with a plan. Be detailed in what you need the money for, how you will pay them back, and how you can be held accountable through your operations. You want to be able to convince them that they can trust you with their money.
Crowdfunding
Another way to get funding is through crowdfunding. This is a less traditional way of getting funding, but it is effective. Crowdfunding is the process of raising funds for a business or idea through crowdfunding sites such as GoFundMe or Kickstarter.
The way this works is that you will get small amounts of fund by several people instead of investors giving a lot. Crowdfunding is a great option because it does not require you to pay donors back. The only risk involved with this method is not reaching your goal and coming up short on funds.
The Bottom Line
Review your financial options before you apply for a loan or start crowdfunding. Evaluate our finances and create a plan for success. Your plan will help you get the funding you need to help you get through trying times.