How to choose the right funding option for your small business

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Maintain your cash flow as a small business owner

The right funding option can keep your small business moving and enable you to seize new opportunities to grow. Capital is key, but it’s important to consider the appropriate finance solution for your specific needs as no small business is the same.

There are a lot of options to choose from these days, and below are just a few alternative solutions to consider when making your decision.

Family & Friends

Many small business owners who have been knocked back by traditional lenders turn to family and friends for funding. This option can work for some, but it’s important to note that even in the best-case scenarios, taking a loan from someone in your personal life can alter the relationship.

Ensure you treat the loan as a formal agreement and use the opportunity to update or finesse your business plan so you and the lender understand how the funds will be used. You want to be confident that the person you’re borrowing from won’t demand you repay the money early, so agree on repayment schedule to avoid any surprises and extra stress.

A business line of credit

If you are finding it difficult to manage cash flow and need some bridging finance to keep your small business moving, a line of credit may be the solution.

A business line of credit typically doesn’t require asset security, and unlike using a personal credit card, it keeps personal and business affairs separate. This can make it much easier to accurately plan business cash flow as a small business owner and avoids blurring the boundaries.

The line of credit can be used when the business has an unexpected requirement of funds, for example when you need some extra cash to cover staff wages over the public holiday period or find yourself suddenly low on stock. It can also give you peace of mind when you’re waiting on those unpaid invoices; an all-too common scenario.

You can draw down on some or all of the funds available, depending on your needs. It is possible to manage this process yourself and only pay interest on funds you have used.

A small business loan

If you’re planning a next step that requires a larger sum of funding, such as renovations to a café or an upgrade to equipment and vehicles, a business loan may better suit your needs.

For example, you may be a fast-growing restaurant that wants to add a few more tables and upgrade some kitchen equipment. A lump sum and regular repayment schedule could be a better option for this use of funds, because you likely need to pay the costs upfront.

Many small business owners are understandably reluctant to tie up their family home with their business venture. An online small business lender often won’t require asset security to access finance, which can help reduce the stress and simplify the process.

Every small business needs funds to grow, but the right funding option will depend on your particular situation and what you want to use it for.

Be sure to do your research and consider your options, timing and funding needs, so you can confidently choose the best solution for your business.

About the author

Anna Fitzgerald is the Group Head of Corporate Relations at Prospa. She focuses on media relations and driving our government, public policy and regulatory agenda. Prospa is Australia’s #1 online lender to small businesses. Prospa understands small business owners need faster finance solutions so that they can make timely decisions quickly and seize opportunities with confidence.