Many small businesses fail due to lack of access to sufficient starting capital. They spend most of their capital in purchasing assets and there is not enough left for running business operations. That’s why it is crucial that businesses have sufficient capital to invest in assets and also run the business for some time before they start to generate enough revenue.
There are numerous financing options that small businesses can use to finance the purchase of assets and working capital. They include angel investors, venture capital, short-term loans, medium-term loans, equipment financing, and more. Here is how these financing options work.
Angel investors is a term for individual investors who happen to possess the inclination, time, and money to invest in startups and small businesses.
An angel investor could offer you plenty of money when your business is pre-revenue. However, the investor will get a share of your business and participate in the process of decision making.
This financing mode is different from small business loan programs, since it resembles a partnership in the long run. In addition to financing, you will get attention, energy, connections, expertise, time, resources and experience. However, if the investor has a vision that is different from yours or you fail to get along with them, then the financing may not be worthwhile in the long term.
A venture capital firm is an organization dedicated to exchanging funding for equity in growing businesses and new ideas.
Venture capital is usually distributed in rounds, with firms and companies matching up for more funds in exchange for more equity. Startups move from the seed round via Series A, B, and C rounds, growing as a business until they launch an IPO.
However, most small businesses never qualify for venture capital funding. These firms normally target disruptive ideas that are centered on technology, have faster-moving business plans, and have higher funding needs.
When it comes to short-term loans, you obtain a lump sum of money from a lender and utilize it in growing your small business as you make periodical repayments until the debt is fully repaid. It is an easy business financing arrangement that allows you to plan the financials of your business.
This is also called a medium-term loan, and it is more suitable for established businesses. They are larger and more gradual to fund, with lower interest rates and longer term lengths than short-term loans. This type of business loan is ideal for small businesses where owners have experience, good credit scores, and annual revenue.
The equipment financing option differs from the others in that it is an asset-based loan. In case you can’t afford to pay the whole price of the equipment at once, and you are confident that the equipment will generate more revenue than the cost of purchase, then this option is ideal. As opposed to relying on credit scores, tax returns, and bank statements, asset-based loans rely on the asset’s value that acts as collateral.
This is another form of asset-based financing for small businesses. It uses your outstanding invoices as security. This loan financing option is also called accounts receivable financing or invoice factoring and is an extra fast, easy way to get the funds you need for new projects or unexpectedly large orders. To qualify for this financing option, you simply need to be any kind of business that invoices its clients. You will also require the invoicing track records of your customers.
A business credit card is another good tool to have when you need to make purchases for your small business. As a business owner, you will require your personal credit score before accessing the loan. Even when you have a credit score of below 580, you will still qualify for unsecured, revolving credit and access to cash back rewards.
The Small Business Administration is not a lender. However, it is a section of the government that facilitates lending to small businesses for larger loans than they might otherwise qualify. The SBA motivates existing lenders to offer loans to small businesses through the guarantee of bigger portions of those loans. If your business defaults on the loan, the SBA will repay most of the loan. At ACS Capital Lending, we are an SBA Preferred Financial Services Company and can help match you with a lender who can approve you for an SBA loan.
In Sugar Land, Texas, you can access financing from local economic development programs, such as:
There is a program of direct incentives in the Sugar Land Development Corporation that offers cash grants to qualifying companies and projects. Factors that affect qualification include wages and total job creation, applicant’s financial strength, relevant business sector analysis, capital investment, and the business history of the applicant. Direct incentives need a performance agreement between the government and the business and are dependent on the assumptions utilized to determine the incentive.
If you are starting a small business in Sugar Land, you can qualify for property tax abatement if your project creates new value. You can get in touch with the city of Sugar Land to verify your eligibility. If you qualify, you can apply through the Economic Development Office. The terms of abatement reach up to 10 years with the amount ranging up to 100 percent of personal or real property per year.
Small businesses can access financing from both the private sector and the local, state, or federal government. Whichever financing option you go for, be sure to utilize the direct incentives and tax abatement programs that exist in Sugar Land. And if you need help financing your business, contact ACS Capital Lending today to explore your options!