Nowadays, starting a business is not just for rich and established people. Being one of the most prominent activities done by young entrepreneurs during or after schooling, starting a business proves to be both a challenge and an opportunity for them. Some do it for charitable and other legal purposes but majority of them do it for profit.
Despite the enthusiasm and the motivation, starting a business will never be real without financing, the most important element of businesses. This is the major problem of young entrepreneurs because of two things: 1) They have no source of financing, or if they have, the amount they get is small and 2) They have no idea on how to manage it, should they be able to get one. As such, one must consider the small business financing options and their interest rates in USA.
In obtaining capital for their start-up business, young entrepreneurs from the USA must consider the following small business financing options and their interest rates in USA:
1. Credit cards
Credit cards are considered by many to be a major source of financing for small businesses. It eliminates the time-consuming effort of going from one place to another just to obtain financing. All that the young entrepreneur must do is to get a Social Security Number, apply for a credit card, and wait for its processing. While getting a credit card is relatively easy, obtaining financing from it is quite challenging.
Using a credit card is one of the small business financing options and their interest rates in USA depend on whether these rates are fixed or variable. For credit cards with fixed rates, the interest rate is at 13.02% per annum, while for those with variable rates, the interest rate ranges from 15.68% to 15.79% per annum.
Entrepreneurs who are just about to start their businesses must not, as much as possible, obtain a credit card as a mode of financing until he has sufficiently established a strong financial foundation of his business. Small business owners can already avail of one, but his spending must not reach the maximum credit limit; otherwise, he will have very big problems paying the same.
2. Mortgage loans
Mortgage loans are those which are obtained in exchange of collateral or a security, such as real properties owned by a person. As much as possible, mortgage loans must be considered as a last resort of obtaining financing, especially for small and startup business owners. This is because in their case, the only property that they have is the business, and if in case he fails to pay the loan at maturity date, he will lose not only money but also the business.
Using mortgage loans is one of the small business financing options and their interest rates in USA depend on the periods at which they must pay the loan in installments. For a 30-year period with fixed rate, the interest rate is at 3.90% per annum; for a 15-year period with fixed rate, the interest rate is at 3.20% per annum, and for a 30-year period with variable rate, the interest rate ranges from 4.01% to 4.11% per annum.
As a small business financing options, mortgage loans must be resorted to very carefully. It will not be a problem if a person has his parents or relatives who are ready to use their properties as collateral, but it will be a big problem for those who don’t have their own properties.
3. Equity financing
Equity financing is a small business financing option wherein a person asks another to invest in his business in exchange of a share in it. Simply stated, a person asks his investor to put money in his business, and in exchange for that money, the investor gets a share either in the control of the business or in its profits.
Equity financing is relatively easy to obtain especially when a small or a start-up business owner asks his friends or relatives. Using it is one of the small business financing options and their interest rates in USA are at zero percent because the money shelled out by the friends or relatives are usually considered donations. However, when such owner asks other people such as angel investors, it will be easy or hard to obtain depending on their agreement.
Using it is also one of the small business financing options and their interest rates in USA will merely depend on such agreement. Interest rates to be charged may range from 10% to 12% per annum, but if no rate is agreed upon, the laws provide that it must not be higher than 7% per annum.
4. Angel investors
Angel investors are people who have a large amount of money ready to be invested in any business where they intend to invest. These are usually rich people who do not know what to do with the money that they have. Small business owners, especially struggling ones, must get the help of these investors because unlike any investor, they invest on the riskiest businesses.
Using it is one of the small business financing options and their interest rates in USA are usually at 10% per annum because the invest at relatively small amounts.
Knowing the small business financing options and their interest rates in USA is essential for someone who intends to start his business or for someone who wants to save his own venture. Depending on the financing option obtained, it can spell the difference between total success and total failure.