Different Sources of Business Finance | Small Business

Whether your business is new, old, large or small, financing is essential in helping your company to grow, expand and take on new organizational strategies. “Business finance” simply refers to money and is a necessary foundation for businesses to thrive. For a business owner, it is important to be aware of the various finance sources so you can determine which source best suits your business’s needs.

Commercial Bank Loans

Taking out a business loan from the bank is one way to finance your business ventures. The process begins by applying for the loan, which often requires the business owner to compose a loan proposal. The Small Business Administration says loan proposals must include a written description of the company’s history, who its competitors are and what the funds would be used for, such as an explanation of the project.

If your company is approved, you and the bank can determine the details of the loan, such as what the interest rate is, what the duration of the loan will be and what the repayment grace period is. Pay special attention to the terms of the interest rate. If you can, get a fixed interest rate that does not fluctuate. Otherwise, you may find that your interest rate will increase, which requires your company to pay more on the loan than what was originally negotiated.

Corporate Credit Cards

A corporate credit card can be used as a way to finance some business expenses. If a business is expanding and has to pay for new furniture for a new office, for example, the corporate credit card is a no-hassle way of fronting the money. However, credit cards may not be enough to finance larger types of endeavors. Entrepreneur.com warns business owners that credit cards have astronomical interest rates (sometimes up to 20 percent), so this may not be a wise financing option unless the company intends to pay off the debt quickly.

Personal Resources

Using your personal funds is a direct way to finance your business. You can do this by applying your savings toward business expenses, taking out a line of credit on your home, cashing out retirement accounts and borrowing money from friends or family. The Small Business Administration points out that most new businesses are personally financed. If this is an option for you, the upside to funding your own company is that you have more control over the repayment options. For example, paying a relative back can be negotiated, whereas when you obtain money from a financial institution you are bound to its repayment terms.

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