What does the state of small business currently look like for entrepreneurs? LendEDU recently compiled research on small business statistics for 2019 that uncovered startup challenges and opportunities.
As far as opportunities go, industries like healthcare and eCommerce are rising in popularity. There has been a boom in women- and boomer-owned businesses. And, the bigger the business, the more likely it will offer its employees’ health insurance benefits.
However, finding financial sources to fund a small business remains a challenge. Entrepreneurs, particularly those starting companies that require inventory and storefronts, require resources that can fully fund their businesses. Where are they seeking funds from directly? Let’s take a look at some of the best options available to small businesses sourcing capital.
One of the quickest ways to fund a small business is often one already in your wallet: using a credit card. Credit cards can supplement other funding methods, or be used to entirely finance a small business. Be mindful of the amount you’re charging and how you will be able to pay it back. Try to pay credit card balances in full each month to keep your credit score from dropping and overhead as low as possible.
According to LendEDU, more than half of all small business owners launch businesses using their personal savings.
What makes personal savings such a popular option? Unlike taking out loans, savings do not need to be repaid at a later date with a tacked-on interest rate. Entrepreneurs may also tap into more than personal savings to fund a small business. Findings from LendEDU’s research revealed that baby boomer businesses have been steadily growing. Boomers often have retirement accounts that they contribute to, allowing them to use Rollovers for Business Start-ups (ROBS) as a form of equity financing. ROBS allows boomer ‘treps the ability to dip into eligible retirement accounts for funds. These may then be used to invest in small businesses and cover expenses without taking out loans.
Loans still remain a viable funding option for small businesses that want to be fully funded. However, many newbie entrepreneurs may not realize just how many benefits come with SBA-guaranteed loans.
The U.S. Small Business Administration works to help entrepreneurs find and get loans that can fund a small business. How does this work, exactly? Lenders work with the SBA to provide loans to small businesses. Loan guidelines are established by the agency, its partnering lenders, community development organizations, and micro-lending institutions. Doing this makes it easier for small businesses to get loans and reduces lender’s risk.
Remember when I mentioned benefits come with SBA-guaranteed-loans? Some of these may include but are not limited to flexible overhead requirements, comparable rates and fees to traditional bank loans, and counseling to support entrepreneurs with running their businesses.
Borrowing From Family and Friends
Another popular method for funding a small business is not to use personal savings or take out a loan, but borrow from family and friends. In some cases, entrepreneurs may even borrow from spouses.
However, this isn’t an invitation to write out a blank check. Entrepreneurs that borrow from family and friends to fund a small business must keep a few things in mind. They will likely need to repay back the amount they borrowed in time. They may also need to pitch these individuals — now investors of their business — on why they should contribute capital before borrowing a financial sum.
Family and friends that loan out money may also want to know about equity options. Be prepared to determine you may be able to provide them with a stake in the business (such as shares) in exchange for the amount loaned out.