Accumulating funds to start a business or grow an existing one is daunting, as it has several challenges. This includes searching for the correct business funding sources so the venture runs smoothly. Furthermore, each type of enterprise requires a different kind of financing. Let’s explore more about the types of funding available, the interest rate offered for these options, and the process that needs to be followed for approval.

Different sources of business funding to look out for:
Given below are the different sources of business funding.

Banks
Among the list of various business funding sources, banks are mainly the top choice among founders looking for financial help for their venture. This is because these financial institutions offer different types of loans at varied interest rates, which gives the borrower option to choose as per their requirement. The interest rate may also differ depending on the creditworthiness of the borrower, the loan period, and the bank’s policy, thereby providing better flexibility to the user.

Small business administration loans
This business funding option proves as a cost-effective financing option for small enterprises. The U.S. government supports this. Small Business Administration loans are offered only through Federally approved lenders. They are available in multiple varieties and can get up to $5.5 million. Furthermore, these loans offer a more extended repayment period to the borrower.

Business line of credit
The business funding source known to offer maximum flexibility is the Business Line of Credit. It works similarly to a credit card, and the financing entirely lies on the credit limit. The interest rate needs to be paid only when money is withdrawn. This form of business funding is divided into secured and unsecured. The secured business line of credit option requires collateral to receive the loan so that the lender can sell off the asset and recover the disbursed amount in case of non-payment. On the other hand, the unsecured business line of credit doesn’t need any security; however, some lenders may provide approval only when some personal guarantee is provided.

Types of business funding
Different types of business funding include the following.

Debt financing
A bank or a financial institution provides this form of business funding that lends money to the borrower on interest over a specific period. This financing is mainly considered for long-term investments like equipment or property. There are many advantages associated with this type of funding, which comprise of:

• The financial institution providing the loan has no control over the business’s operations and ownership.
• The relationship with the lender also seizes when the borrower repays the loan.
• The interest levied on the loan is tax deductible under business expenses.

Equity financing
This form of business funding comprises selling a part of the business to a financial institution or an investor in exchange for capital. This is mainly adopted when the enterprise is in its early stage and doesn’t involve paying interest to the lender. Some of the benefits associated with this type of financing include:

• The borrower is not required to pay back any money in case of bankruptcy, as the investors are the partial owners of the business.
• There is no need to pay any monthly installments, which gives the business more liquid cash to take care of operating expenses.

Mezzanine capital
The third type of business funding adopted by business owners is Mezzanine Capital which clubs the best advantages of equity and debt financing, hence a hybrid system. Some of the advantages associated with this form of funding include:

• This loan type is suitable for new ventures that are already progressing. Banks may not be very eager to provide funds to a business that doesn’t possess financial data for the past three years. And, for new enterprises, providing this information becomes impossible.
• Mazzini capital is treated as equity along the business’s balance sheet, making it appear more appealing to future lenders.
• This type of loan doesn’t require much processing time, so the funding is received quickly.

In conclusion, business funding is not an easy job, but with the help of the right funding source and type, it can be an excellent opportunity for the enterprise’s growth. Therefore, it is significant to follow due diligence while considering the options for funding. Besides, it is essential to have a written financial map that gives you a measurable goal to attain. Since you can track your business growth, you can eliminate or reduce doubt or uncertainty about financial decisions. This way, you can make suitable adjustments to help overcome setbacks that could derail your business.