Why Small Businesses Are Thankful For Capital Funding

Estimated reading time: 3 minutes

When you want to start a small business many of the initial decisions and plans can be fun! It can be fun to think of a business name and pick a logo. You’re passionate about it. You’re looking to solve problems for your customers. You have a mission you want to achieve—it’s all so inspiring! But starting a small business takes more than passion and inspiration. It takes resources, time, and capital.

A Capital Definition

We all know about capital cities and capital letters. But what is “capital” when it comes to the business world?

cap·i·tal

/ˈkapədl/

noun

1. wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.

synonyms: money, finances, funds, means, assets, wealth, resources

Capital Funding For Small Businesses  

All businesses need money to get started. They need the funds to start and grow. Acquiring capital can come from many different avenues. You have to decide which is right for you and your business.

• Borrowing: Your family and friends might believe in your business and offer to lend you money. It can be such a confidence boost, but borrowing money can make enemies out of your friends and family. Risking those relationships can be well, risky.
• Investors:  Investors exchange money for a percentage of company ownership. It’s more formal than handshake borrowing and requires some paperwork. But you might not want to compromise your vision with another person.
• Loans: Most banks can give small businesses loans to get started. They can have long application processes and often require collateral. You’ll be making installments of payments for the length of the loan.
• Grants: Depending on your business, you might qualify for federal or state-level grants. They are even privately funded grants out there in the world. On the downside, they can take a long time to come in. And the paperwork can be very time-consuming and confusing.
• Credit Cards: If you don’t have the cash on hand, you can charge your initial business expenses. The scary part is that you could keep accruing debt—you don’t want those interest charges to get the best of you!
• Factoring: Many small businesses benefit from factoring. You need to have some invoices to factor, so this works if you already have conducted some business.

Small Business Factoring   

Small business factoring might be your best choice for capital for small businesses. If you sell to other companies or the government, factoring could be especially beneficial. Business-to-business (B2B) and business-to-government (B2G) companies often use accounts receivables factoring. Factoring means businesses sell their yet-to-be-paid invoices to a factoring company. The factoring company can pay up to 80% of the invoice amount right away. They take over the responsibility of the invoice and pay the business the rest (minus a small fee) once it’s settled.