More women are leaving the corporate world to become entrepreneurs. For the past two decades, majority women-owned firms have continued to grow at around two times the rate of all firms. According to the Center for Women’s Business Research, the number of majority women-owned businesses increased 42% between 1997 and 2006.
One of the concerns faced by a woman business owner is finding the money to start or grow her business. While some women-owned businesses are funded through a small nest egg, others may turn to additional means of finance.
Here are 5 tips on funding a woman business start-up.
Borrowing From Family And Friends
This is one of the most common ways to fund a new business. Your family and friends are more likely to lend you their money if they are convinced by your business plan and idea. Borrowing money from people you know is a cost-efficient approach as you may not be required to pay extra fees or interests. However, it could potentially lead to strained relationships if you are unable to repay the money. Some individuals believe that they are automatically entitled to a piece of the business in return for the money loaned. Any stipulations associated with the “loan” should be put in writing to avoid any future misunderstanding.
Some women business owners are aware of the tension that can potentially arise from borrowing from family and friends. If you are one of them, why not ask your family or friends to help out in running your business such as taking orders, promotions, delivery and so forth.
Small business owners reportedly use several credits cards to pay for expenses. This type of funding is expensive and risky. Failure to make repayments can jeopardize your personal credit. If you want to resort to this means of funding, make sure you can pay off your card before the interest kicks in.
Banks are usually quick to approve loans less than $25,000 based on personal credit. If you need a few thousand dollars to spend on equipment or inventory, a personal loan is an ideal way of funding. The interest rate is less than that of a credit card. You will still need to submit a business plan to support a personal loan application.
You’ll need to provide collateral or guarantee in addition to a business plan or financial statements when applying for a business loan. The screening process is more rigorous. Business loans are typically available from $25,000 onwards. If you are using the equity of your home to get a business loan, you may be putting your home at a risk of foreclosure if you fail to meet your monthly repayments. Understanding all of the details regarding this type of loan is vital to protect the ownership of your home.
When a larger loan is needed to acquire a building or an expensive piece of equipment, there are business loan programs for women provided by Small Business Administration (SBA). Please note that SBA only acts a guarantor but does not offer loans to small businesses. SBA reviews loan applications by borrowers. If a loan application is eligible, SBA issues a commitment letter on behalf of the applicant. This letter shows the willingness of SBA to guarantee the loan, which helps to speed up the loan approval by a lender.
There is an inherent risk of funding any business activities, no matter what type of funding you choose. The key is not to borrow too much to the extent that you cannot meet the monthly repayments from the income of your business.