A lot of bootstrapped businesses are wary of small business loans as they do not want to give up ownership to raise money.
A lot of enterprises and small businesses often start with self-funding or bootstrapping. For most of these entrepreneurs, maintaining ownership is important. But, as most businesses grow, they need a financial investment that may not be fulfilled by the means of personal capital or even organic revenue. Fortunately, there are small business loans designed to cater to such businesses who are looking to secure funds without giving up control.
The aim of this article is to explore such small business loans such as no-collateral loans, merchant cash advances, and other financing solutions that supports the goals of bootstrap entrepreneurs.
Understanding Bootstrapping and Ownership Protection
In layman’s term, bootstrapping refers to using personal savings or business earnings to fund a company. This method of funding lets business owners keep full ownership of the company, but the capital raised from this method can be limited and might not cover all the financial needs as the business grows. This is where small business loans can play a vital role as they offer capital without the need to give up equity.
For those hesitant in traditional equity financing, these loan options offer flexibility and stability. The funds can be used to cover any business needs – unexpected expenses or business expansion – without compromising ownership.
Types of Small Business Loans That Help Your Business Scale Sustainably
No-Collateral Small Business Loans: Access Funds While Protecting Assets
When it comes to protecting ownership, no collateral small business loans can be good funding option. Unlike traditional loans such as term loans, zero collateral is required to secure funding from such business loans, which reduces the risk of forfeiture in case of late repayments. These loans can also improve your cash flow management by ensuring funds are available for daily needs and even larger expenses.
Here are some of the popular funding options:
- Unsecured Business Loans: These are zero collateral small business loans that offer lump sum capital but at a slightly higher rate of interest to reduce the lender’s risk. These loans can be availed through online lenders and even some banks.
- Business Lines of Credit: A business line of credit is a flexible funding option that provides entrepreneurs with quick access to capital and lets them withdraw the amount they need. This flexibility is great for effective cash flow management as borrowers only pay interest on the amount that they have withdrawn. They often do not require any collateral to secure the funding, especially for those businesses that have a solid credit history.
- SBA Loans (Small Business Administration Loans): Though SBA loans do require some kind of collateral to secure funds, there are smaller loans under SBA – such as those under $25000 – that may not need collateral, hence making them more lucrative to business owners seeking to preserve ownership. Moreover, these business loans come with low rates of interest, making them more affordable than other high-interest funding options.
Merchant Cash Advances: An Option for Short-Term Cash Flow
For self-funded businesses with fluctuating incomes, a merchant cash advance (MCA) can be the answer to all their financial problems. These advances offer quick capital without conventional funding requirements. In reality, an MCA is not a loan but an advance on future sales where borrowers get a lump sum of capital in exchange for a percentage of daily or weekly sales until the advance is paid off. Though MCAs do not require capital or even equity, they come with high interest rates as compared to traditional loans that can disrupt the cash flow if the repayment is not planned properly.
Low-Interest Small Business Loans: Minimizing Financial Strain
While looking for the best small business loans in the market, interest rates are always a key factor as low interest business loans can keep the overall cost down, making them more affordable for bootstrapped companies looking for growth without financial burden.
Two types of low-interest funding options to consider include:
- Microloans: Microloans, offered by organizations like the SBA, are designed for smaller funding needs. They often come with lower interest rates than conventional business loans.
- Peer-to-Peer Lending: Peer-to-peer (P2P) platforms plays the mediators as they connect small businesses with individual investors, who are willing to offer fundings at competitive rates. These platforms often provide low-interest business loans to borrowers with good credit.
Alternative Financing Options for Bootstrap-Friendly Growth
Not all bootstrapped business owners might be eligible or even interested in traditional loans. Fortunately for them, there are alternative funding methods available that align with business goals:
- Crowdfunding: Platforms like Kickstarter and Indiegogo allow small business owners to raise funds from a large group of supporters without incurring debt or sacrificing ownership. For businesses with strong customer bases or innovative products, crowdfunding offers a way to engage with the audience while securing funds.
- Invoice Financing: If your business invoices clients, invoice financing lets you borrow against unpaid invoices, giving you immediate access to capital based on future revenue. This method keeps debt low and avoids collateral requirements, allowing for quick access to funds as invoices are collected.
Conclusion
Setting up a business without your personal savings is not easy. Those who do launch such businesses always want to keep the ownership to themselves. The good news is that the lending landscape has evolved so much today that it is possible to keep the ownership and access capital with the right financing. Small business loans offer just that kind of option. By choosing a loan that suits your business needs, you can fuel growth and improve the cash flow management of your business without giving up what you have created.
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