How to Get Financing for a Business

Financing is an important step to launching and operating a business. By definition, a business is a person or entity that sells products or services. According to the Small Business Administration (SBA), there are about 28 million small businesses in the United States, as well as millions of other larger businesses. Regardless of size or industry, all businesses need money to produce the products or services that they sell. So, how can business owners get financing to fund their business operations?

How to Get Financing for a Business

What Is Business Financing?

Business financing refers to the process of securing or acquiring money to fund a business’s operations. Some business owners use their own personal cash or credit cards to fund their business, whereas others seek money from external sources, such as banks, private lenders or investors.

Using this money, business owners can purchase supplies, hire workers, streamline logistics, and perform various other tasks associated with their business.

Debt Financing

Financing options for businesses can be broken down into one of two categories: debt and equity. Debt financing, as the name suggests, refers to borrowing money under the terms and conditions that you’ll repay it, typically with interest.

Normally, there are no requirements or criteria regarding the way in which the borrowed money is used. Rather, business owners can use the money however they please.

Debt financing can be acquired from the following sources:

• Banks
• Credit unions
• Private lenders
• Small Business Administration (SBA)
• Micro Lenders
• Home equity loans
• Friends or family

Equity Financing

The other form of business financing is equity financing. Equity financing differs from debt in the sense that the business owner isn’t required to pay it back.

When a business owner secures equity financing, he or she essentially sells partial ownership of their business in the form of stock shares to an investor.

Equity financing offers some key advantages over debt financing, the most notable being that there are repayments. A business owner may sell 5% of his or her business, for example, in exchange for $75,000. The investor receives stock shares equal to 5% of the business, whereas the business owner receives $75,000 that he or she can use to fund and grow their business. On the other hand, equity financing requires business owners to give up partial ownership of their business.

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