According to the Small Business Administration, small businesses make up 99.7 percent of all employer firms in the United States. They employ 47.5 percent of the private workforce and generate 64 percent of new jobs created in the U.S. each year. In addition, small businesses produce 13 times more patents per employee than large patenting firms and are responsible for almost two-thirds of all commercial innovation in the United States.
Clearly, small businesses are a vital part of our economy and way of life. But what exactly is a small business? The Small Business Administration differentiates between small businesses and large firms based on industry, firm size, and a number of employees. SBA defines small businesses as “businesses employing fewer than 500 employees. For example, a company with 50 employees employed in the trucking industry is considered a small business. In contrast, a company with 500 employees employed in the banking industry is not.
Why Do Small Businesses Often Need Money?
Small businesses are the lifeblood of the American economy, accounting for two-thirds of all new jobs created in the US each year. But starting and sustaining a small business is not easy. They often lack the funds necessary to get off the ground or keep their doors open during tough times.
There are a number of reasons why small businesses need funds. To start with, they may need help with initial costs such as rent, equipment, inventory, and employee salaries. They may also need ongoing funding for things like marketing and advertising, which can be expensive.
07 Small Business Financing Ideas for 2022
As a small business owner, you are always looking for ways to finance your business. You may be able to get a loan from a bank or another financial institution, but there are other ways to finance your business. Here are seven small business financing ideas for 2022:
1. Traditional Bank Loans
Small businesses have a harder time than ever qualifying for traditional bank loans. In the aftermath of the Great Recession, banks have become increasingly risk-averse, and small businesses are feeling the pinch. In order to qualify for a loan, small businesses must now provide extensive documentation and jump through numerous hoops. The process is often so onerous that many small businesses give up before they even get started.
Traditional bank loans are becoming increasingly out of reach for small businesses. An alternative to traditional bank loans is peer-to-peer lending platforms that connect borrowers and lenders online. These platforms use technology to streamline the process of matching borrowers with lenders, allowing small businesses to quickly obtain the capital they need.
2. SBA Loans
The Small Business Administration (SBA) is a government agency that provides financial assistance to small businesses. One of the ways they do this is by guaranteeing loans made by banks and other lenders. This means that if small business defaults on its loan, the SBA will pay the lender back a portion of the money.
This guarantee makes lenders more willing to give loans to small businesses, which can help them get the financing they need to start or expand their operations. The SBA also offers direct loans to small businesses in some cases. SBA has diverse loan programs for different types of businesses. In general, SBA prefers to fund small businesses that have been around for a while and are profitable.
3. Credit Cards
A lot of small business owners don’t know that they can use credit cards for financing. This is a great option if you need money for business expenses but don’t have the cash on hand. You can get a business credit card with a high limit and low-interest rate. This can be a great way to finance your business without having to take out a loan.
Business credit cards are designed specifically for small businesses and can help you manage your finances. They can also help you get better interest rates on loans or home equity lines of credit. When you apply for a business credit card, you’ll need to provide the bank with certain information about your business. You’ll need to tell them about your credit history, as well as provide them with financial information. You can get this information from your CPA or tax preparer.
4. Online Lenders
In recent years, there has been a proliferation of online lenders offering small business financing. While these lenders may be a convenient option for some businesses, it’s important to do your homework before choosing one. Here are a few things to keep in mind:
First, make sure the lender is reputable and accredited. There are many fly-by-night lenders out there, so it’s important to make sure you choose one that is established and has a good track record.
Secondly, compare interest rates and terms. Online lenders tend to have higher interest rates than traditional banks, so it’s important to shop around and compare offers before choosing one. Or you can opt for an expert mortgage broker to carry out the work for you.
Finally, make sure you understand the loan repayment terms. Some online lenders require weekly or daily payments, which can be difficult for some businesses to manage.
5. Peer-to-Peer Lending
Peer-to-peer (P2P) lending is a financing option for small businesses that are looking for alternatives to traditional bank loans. P2P lending platforms match borrowers with investors who are willing to lend money. The borrower pays interest on the loan, and the investor earns a return on their investment.
P2P lending is a relatively new financing option, but it has already become popular among small businesses because it offers several advantages over traditional bank loans. First, P2P loans are easier to qualify for than bank loans. Traditional bank loans can be difficult to secure because banks will often require a business owner to have a minimum amount of revenue before approving the loan.
Another advantage of P2P lending is that it offers lower interest rates than traditional financing options. A borrower can apply for a loan from a P2P lending platform. The platform will review the application and determine if the business meets its lending criteria by evaluating the business’s financial history, credit rating, cash flow, and other factors.
6. Equipment Financing
If you’re a small business owner, you know that acquiring the right equipment is essential to your success. But if you don’t have the cash on hand to pay for that equipment outright, you might be wondering how you can finance it.
There are a few different options available for financing equipment for your small business. You can take out a loan from a bank or other financial institution, lease the equipment, or enter into an equipment financing agreement.
What Is Equipment Leasing?
Equipment leasing is a contractual arrangement in which you pay a leasing company for the right to use an item of equipment over a specific period of time.
7. Invoice Financing
Invoice financing for small businesses can be a great way to get the working capital you need to grow your business. With invoice financing, you can sell your invoices to a third party at a discount in order to get the cash you need now, and then collect the full amount of the invoice from your customer later. This can be a great option for small businesses that have trouble qualifying for traditional loans. In fact, invoice financing has been growing in popularity, especially with the rise of online marketplaces.
There’s no one-size-fits-all answer to the question of how to fund small businesses. The best option for your business will depend on a variety of factors, including the size and type of your business, your personal financial situation, and your plans for growth.
With so many financing options available, there’s likely a perfect fit for your small business. The key is to do your research and choose the option that best meets your needs.
If you’re not sure where to start, talk to your bank or accountant for advice. They can help you understand the different financing options and make a recommendation based on your specific situation.