Small loans for funding small businesses

Funding Small Businesses

Funding of business means the providing financial resources to a company in monetary terms or other ways like efforts and time to finance the program, or need by an organization or a company. The sources of funding a small business are often in the forms of donations, grants, credit, venture capital, taxes, subsidies, etc. The funding which involves an exchange of equity ownership is referred as crowdfunding. The funding can also be raised by investors by providing them the deal and ideas they have been looking for and pursuing them to invest in their business as it might be beneficial for them.

Government grants are available for funding small businesses that have a project or program which s beneficial to the public as a whole and not just the company. Funding is done for various uses like for research related to a project for commercial or non-commercial funding, to launch a small business or to make uses of the investment by buying securities of these funding to generate higher returns. People often also go for small loans for funding of their business. Let’s talk about that.

Small loans for business

Small loans for business is also known as franchise financing or startup financing which means that a small or a current business takes a small amount of loan to start a new venture, purchase an existing venture or to bring money into his current venture for future or long-term purposes. There are various ways arranging small loans for business – each of it has its own features, benefits, and limitations as well. Traditionally there have been two ways of financing the business or as they say taking small loans for business which is debt financing and equity financing.

Debt financing:

In debt financing the borrowing funds have made it easier to finance the business as the lender will not have any share in the profits of the business nor will he have any say or how the business will work. Though in case of non-payments of the funds, the forfeiture of the assets which might even include personal assets at a time which have been given as security. Excess debt may also lead to bankruptcy at times. So it is very important to choose the way of funding of a business carefully. The sources of debt financing are family or friends, personal credit cards, SBA loans, microlenders, etc. In the USA, people borrow around $23.000 from relatives, family, and friends for a small startup.

Equity financing:

Equity financing involves selling the ownership interest which means that the person has to make the equity investment to the business rather than giving loans to the borrower so no repayment burdens are involved here. Though it involves that the investors have a share in the profit of the company and say on how the business is to be run and all other legal matters involving the interests of the company. At times it also involves compliance with state and federal laws in order to take equity financing for starting up a business. The sources of equity financing include family, relatives, friends or venture capitalists.