Options for Financing Your New Small Business

Most new companies do not start up fully dependent on cash investments. In a lot of cases, especially those with a sole owner or small partnership, it is a combination of owner investment and business financing to get the job done. This is ideal for most new companies because it limits the risk to investors and spreads the cost of important assets over the first several years of operation. That makes it easier to reach a return on the original investment.

In many cases, even investors with the cash to fully fund a small business will opt not to, just to hedge their own risks with financing. If you are trying to figure out your options, here are a few of the most popular resources for startups.

SBA Loans for Equipment or Property

There are two programs offered by the Small Business Administration to help companies acquire the assets they need to operate. The 7a program is designed to help you purchase property that you can use as a base of operations. You can use it as a workshop, retail space, or office space, but you have to occupy the majority of the interior space. This is an especially popular option for hotels, where the property is the company’s most important asset.

There is also the 504 loan program, which is a multi-asset loan. You can use it to purchase property too, but it can also be used for equipment. It is especially useful for new companies because it can be secured with multiple assets to cover them all, allowing you to use a single loan for your major equipment purchasing and property investment.

Term Loans for Asset Purchases

Banks also offer term loan programs for both equipment and real estate. In fact, this is often the most well-known kind of business financing. Bank loans often have steep requirements that can be tough to impossible for new companies. For example, some loan programs will not work with a business that is less than two years old under any circumstances.

Working Capital Loans

If you have other investments and you want to use the equity in them to finance your new company, that is also an option. Using cash-out financing to get working capital is a common move, and private lenders offer options that include stated income loans for rental properties and bridge loans that use your existing real estate investment equity to finance what is essentially a credit line with a limited term. If you’re not sure how to approach business financing for a new company yet, consider how each of these options could work to your advantage. It often takes more than one choice to fully finance a small business.