Small businesses are the backbone of economies in nearly every nation around the world. In the United States, small businesses make up nearly 50 percent of the GDP and accounts for up to 99 percent of all employers. But in order to stay open and continue to grow, these small businesses need access to financing. There are a few different ways for small businesses to get the financing they need.
Securing a loan from a bank is one of the most common ways to finance a small business. Banks need to rest assured that the business is stable and will be able to pay back the loan. To do so, they may require a business plan, financial projections, tax returns, and more.
Venture capital can also be a great source of financing for small businesses. Typically, venture capitalists invest equity in small businesses that they believe have the potential to become the “next big thing”. In exchange for their investment, venture capitalists will take a stake in the business, which may give them some degree of control over decisions.
Angel investors are another type of investor who provides financing for small businesses. Angel investors are usually wealthy individuals who have a lot of knowledge about the industry and are willing to take a chance in investing in a small business. These investors typically focus on small companies and provide a large chunk of capital in exchange for equity or a portion of future profits.
Small businesses can also seek out grants from local, state, and federal governments. These grants are typically given out to businesses that provide a public service, have an innovative idea, or meet certain criteria, such as being a woman- or minority-owned business. The application process for these grants usually requires at least a business plan and a budget.
No matter which type of financing small businesses choose, it’s important to remember that there can be significant risks, as well as rewards. Access to capital can help small businesses grow, but owners need to be mindful of the money they borrow and how they use it.