7 Financial Tools You Can Leverage for Your Small Business

Financial tools

If you own a small business, you will understand the vitality of funding at a business’s startup or growth stage. The journey from startup to revenue generation and break-even requires robust financing. But the question is – how to get financing for a business?

Small business owners have the option of applying for business loans offered by various lenders or banks, which may not be feasible for everyone. In the beginning, attaining a consistent funding source may seem difficult – but it is not impossible.

Starting with a small funding pool may prevent business growth and impede your efforts to scale up. Indeed, lack of funds is one of the top reasons for failed businesses that start with innovative ideas and a passion for entrepreneurship.

Experts say that one of the biggest mistakes small businesses make is sticking to one source or method of financing their business. Being open-minded and exploring the primary ways to fund your business is essential. Of course, each option must be thoroughly analyzed for affordability and reliability before committing to it.

Here’s a look at some ways to finance a small business:

How to Finance a Small Business

A lot is involved in running a small business, and funds are essential to prevent any hiccups that a small business might face. For day-to-day expenses, big purchases or bills, or even for some urgent need, there are a few options that could work really well for small business entrepreneurs. Take a look at them:

  1. Personal Loans for Self-Employed – Unsecured loans such as personal loans for self-employed are good financial tools for small businesses. Small businesses can use personal loans to fund quick, small expenses or to cover operational costs at a difficult time in business. Your personal loan eligibility often (but not always) depends on your credit score and repayment history.

With the advent of the fintech industry, getting a personal loan to help you run your small business is now more convenient than ever. There are several reliable online platforms, like KreditBee, where you can apply for a personal loan for self-employed at competitive interest rates even if you don’t have a credit history or if your credit score isn’t optimal. Based on your eligibility, and funding needs, you can avail of a personal loan by quickly filling out the application online and submitting all the required documents. KreditBee’s hassle-free speedy processing ensures that the fund is directly disbursed into your bank account in just 10 minutes. Quick profile assessment, instant loan approval, and fast disbursal by KreditBee have helped numerous small businesses get the funding they needed at the right time.

  1. Your Assets – Most small business owners start by funding their business from their pocket. Not everyone has sufficient liquid assets, so you can think about the high-price items you own, but don’t need. For example, you can get a loan against jewellery or antique heirlooms in the family, or you could downgrade to a smaller house for the first few years of setting up your business. However, be careful when using your assets to power your business.
  2. SBA Loans – SBA loans are designed especially for small business owners wherein the government backs up the borrower. These loans were created to encourage banks and NBFCs to lend money to small businesses. If a small business defaults in repayment of a loan, the government repays a portion of the loan as well as to provide added help. The borrower is expected to adhere to all the loan terms, conditions, and interest rates when making the repayment.
  3. Business Lines of Credit – A business line of credit is a unique financial instrument that allows the borrower to borrow money on an as-needed basis rather than a lumpsum loan. You can opt for an unsecured or secured line of credit as per your affordability and eligibility. But unsecured credit lines sometimes tend to have higher interest rates, so ensure that you do your research well. The good thing about business lines of credit is that they have a revolving limit, similar to credit cards – but you need to fulfil the eligibility requirements.
  4. Working Capital Loans – If you need a loan to tide over a difficult time in your business, you can opt for a working capital loan to cover your operating expenses. A working capital loan is when you can borrow equivalent to your working capital and is meant to keep your business afloat in times of reduced activity. It is beneficial in seasonal businesses like in the tourism industry, horticulture, etc.
  5. Equipment Financing – Buying equipment for your business is a significant capital expenditure. Opt for equipment financing if you need to purchase things like construction equipment, commercial ovens, manufacturing equipment, etc. The interest rates on equipment finance are high, so you must be careful about the turnaround time in your line of business. If you are unable to repay the loan, you may lose your equipment as the equipment itself secures an equipment loan.

How to Grow Your Small Business to Take it to the Next Level

The options described above are for funding expenses you might face in the day-to-day running or any additional or urgent operational cost. However, if you need to support significant capital expenditure for financing a new business, or when you want to grow once your business is running smoothly – to take it to the next level, here’s what you can consider:

  1. Angel Investors – Angel investors are high net-worth investors who finance new businesses with high growth potential. There are always terms and conditions applicable to angel investment. For instance, the financing received from angel investors is not a loan – it is an equity investment, giving the investor a stake in your business.
  2. Venture Capitalists – Venture capitalists are firms that provide financing to small businesses in their initial stages. However, venture capital firms are looking for significant investments that give them a controlling part of the company.
  3. Crowdfunding – When a group of individuals reaches out to prospective investors on different platforms to collect a substantial investment for small businesses with innovative ideas, it is known as crowdfunding. These investments may be on a debt or equity basis. It is easier for small businesses to reach a pool of investors through crowdfunding rather than pursuing a single investor on their own.
  4. Bootstrapping – Bootstrapping is an unconventional way of financing your business. It is known as bootstrapping when a small business owner does not seek external credit but uses their savings and/or salary from a part-time job to raise funds for their business. Bootstrapping is not appropriate for all kinds of companies, but those who require small capital to get their business off the ground can use this as an economical way to start a business.
  5. Private Investors – Retired industry professionals or wealthy business people may be happy to finance your small business with an investment. However, bringing in a private investor would mean placing them on your advisory board or board of directors. In such a case, you should be willing to take their advice or opinion into account when making significant business decisions.

Whichever mode of funding you choose, remember that every business is unique, and something helpful to another company may not be the answer to your problems. Think about the pros and cons of every funding option before you decide which one to go with. Consider risks, affordability, personal finances, business expenses, and the stake in business you may have to forego. If you educate yourself well about the different ways to finance a small business before choosing a funding option – you are sure to select the best choice for your business.

Author Bio:

Tanvi Kaushik specializes in Content Marketing and works with the Digital Team at KreditBee – India’s fastest personal loan platform where self-employed and salaried professionals can easily avail of personal loans in just a few minutes when in need of quick funds. Tanvi writes to-the-point articles on personal finance and budgeting, which are truly appreciated by her readers. She is committed to making money matters easy to understand even for the layman. Her commitment to her work doesn’t stop her from pursuing her hobbies of hiking, trekking, and going on adventurous trips.

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