Common Funding Options for Your Contracting Business

Starting a business is both timeless and very, very current. You might walk into a bank for a loan, or you could rely on more innovative sources of funding to back your new career as a contractor. Although you will need to consult a financial expert for advice on the best ways to fund your business, it helps to have a better understanding of what options you might have. Here are the typical methods modern businesses get that all-important capital to pay for equipment, materials and labor.

Traditional Loans
If you have ever applied for a car loan or a mortgage, you have a sense of what getting a standard business loan might be like. You go to a bank or credit union and apply for a loan. You might even submit an application to an online lender. With a traditional loan, you can expect the lender to take your:

• credit history
• assets in reserve
• business history
• ability to repay

into consideration before deciding whether or not to lend you the money. Some people struggle to obtain a traditional loan if they are just starting a business. Lenders may be more willing to offer a loan if the borrower can secure the loan with property, such as real estate or equipment that they already own.

Loans With a Government Guarantee
If you are very new to the business world, you may not know that the U.S. Small Business Administration (SBA) guarantees loans that certain lenders make to business borrowers. The SBA doesn’t actually lend you money. Instead, they guarantee loans granted to applicants who meet their requirements. The guarantee makes approved lenders more likely to grant a loan to businesses that might not otherwise be able to qualify. Although the SBA loan process can be time-consuming, it is often a practical option for applicants who cannot easily get a traditional loan.

Lines of Credit
When you first start out as a contractor, you might know that you need some money, but not know precisely how much. It takes time and experience to be able to balance your cash flow, and decide when you should invest in a piece of equipment, or simply rent it on an as-needed basis. For situations like these, you might consider asking your bank or credit union about opening a line of credit instead of a closed-end loan. A line of credit is often unsecured. You should keep in mind that unsecured debt, like debt on a credit card, may have a higher interest rate.

Crowdfunding
Although crowdfunding is not a particularly new concept, technological advances have made it easier for entrepreneurs to put forth their ideas and gauge interest from a wide range of sources. There are many crowdfunding sites that you might use to get direct funding to start your business, and they all run a little differently. You could receive money with no expectation of a return, or be compelled to provide something for your backers. Some crowdfunding site options set requirements on when the money must be repaid. Many sites also charge a fee to use the service. It is on you to choose the one that works best for your needs.

Person-to-Person Lending
Decades ago, if you wanted to get a loan from a person instead of an institution, you usually had to know someone who had that kind of money available. It is a little easier to negotiate a person-to-person loan these days, but as with any kind of atypical lending agreement, you should make sure you understand the terms before you take the money. Once you have successfully applied as a borrower, several organizations will match you with a lender, an individual or a group of investors. This approach to lending can open doors, especially for people who have been turned away from traditional loans. Just make sure that you know what you are agreeing to, and seek advice from a financial expert if you have questions.

Getting funding to start your business may take more than one attempt. With this information, you can refine your search for funding to the options that are most likely to work ideally for your business plans. To get expert training and certification for your contractor career, contact CSLS today!