Money is often a concern for entrepreneurs who are trying to start a small business. Financing a business isn’t as simple as just going out and getting a small-business startup loan – lenders aren’t typically eager to hand over thousands of dollars to a business that isn’t bringing in revenue yet. Finding loans can be confusing for entrepreneurs, too – they often have no idea where to begin and how to find the lowest rates on small business loans.

There are so many great reasons to start a business that people even use home equity loans to finance a start-up because it’s an easy and fast way to secure money with a low interest rate – or, if you’re running an established business, a trade credit to front your inventory purchase (learn how to get trade credit here.)

If you are like many other entrepreneurs and need funds to get your business going, take a look at these 6 places to find loans to finance a brand new business.

Small business loans

1. SBA loans or microloans

The U.S. Small Business Administration has a microloan program that offers small businesses up to $50,000 to start the business. The average microloan is only around $13,000, though, which might not be enough funding for all borrowers to get started.

The SBA’s flagship 7(a) loan program also offers financing for borrowers to use to start businesses, but the loans aren’t easy for startups to get. The loans tend to go to businesses that are established and can provide collateral such as real estate or another physical asset in the event the business defaults. Qualifications are strict and the process can take months to finalize.

2. Friends or family

One of the most common ways to finance a new small business is to take a loan from friends or family. However, the potential cost of failure goes beyond just financial if you get yourself in a situation where you are unable to pay back the loan you took from your friends or family. One of many sources of great advice for new business owners is to always consider the risks involved before you make any decision. This type of financing is personal, so make sure your friends or family are comfortable with the risks, too.

3. Credit cards

Small business owners often fund their businesses with credit cards. If your credit isn’t the best, though, you may be limited to secured credit cards – these cards have higher fees than typical credit cards.

Remember that using credit cards may seem like the easiest option, but credit cards are an expensive way to finance a small business, especially if your credit is poor. Credit card issuers have the ability to determine your annual percentage rates based mostly on your credit scores.

4. Personal loans

Online lenders now offer small business owners financing through personal loans. Similar to credit cards, these loans usually have high APRs, especially for those individuals who don’t have the best credit. APRs are seen as high as 30 percent, so many professionals say that this funding option should be the last one for small-business owners.

Crowdfunding

5. Crowdfunding

This is a popular way for small businesses to raise money – small business owners can solicit funds to start their business via online campaigns and pay back the donors with gifts.

There are other options opening up for equity crowdfunding, too. Equity crowdfunding is when business owners work with a public pool of investors who agree to finance the small business for equity ownership. This option has become more popular recently with security regulations that allow small-business owners to reach out to mom-and-pop investors instead of accredited investors exclusively.

6. Grants

Another way to raise startup dollars for small businesses is through grants from private foundations. The grants are sometimes tough to get, but free capital may be worth the hard work for some new businesses that need the funds to get going.

There are small-business grants for veterans, and ones for women, too. Federal grants are not plentiful, but they do exist. When it comes to finding grants, don’t give up! The task of finding money for your business is difficult but potentially very rewarding.

Takeaway

There are numerous financing options available to help small businesses start and grow their operations. Consider your goals, credit score and the amount of money you need to get your business going as you explore each lending option and decide which is the best way to fund your small business. You can view a variety of different loan options and compare them by visiting MoneySuperMarket.

Which lending option did you use to fund your small business and why did it work well for you?