Do you have a business idea but no money? Here are 5 tips for financing a women-owned business

More women are leaving the business world to become entrepreneurs. Over the past two decades, most women-owned businesses have continued to grow at a rate roughly twice the rate of all businesses. According to the Center for Women’s Business Research, the number of businesses majority owned by women increased 42% between 1997 and 2006.

One of the concerns a woman business owner faces is finding the money to start or grow her business. While some women-owned businesses are financed through small savings, others may turn to additional sources of financing.

Here are 5 tips for financing a women’s business start-up.

Loan from family and friends

This is one of the most common ways to finance a new business. Your family and friends are more likely to lend you their money if they are convinced of your business plan and idea. Borrowing money from people you know is a cost-effective approach, since you may not have to pay additional fees or interest. However, it could lead to strained relationships if you are unable to repay the money. Some people believe that they are automatically entitled to a piece of the business in exchange for the money they borrow. Any stipulations associated with the “loan” must be put in writing to avoid future misunderstandings.

Some women business owners are aware of the stress 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 you run your business, such as taking orders, promotions, deliveries, etc.?

Credit cards

Small business owners reportedly use multiple credit cards to pay for expenses. This type of financing is expensive and risky. Failure to pay can jeopardize your personal credit. If you want to use this means of financing, make sure you can pay off your card before interest is incurred.

Personal loans

Banks usually quickly approve loans under $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 form of financing. The interest rate is lower than that of a credit card. You will still need to submit a business plan to support a personal loan application.

business loans

You will need to provide an endorsement or guarantee in addition to a business plan or financial statements when you apply for a business loan. The selection process is more rigorous. Business loans are typically available from $25,000 and up. If you are using the equity in your home to obtain a business loan, you may be putting your home at risk of foreclosure if you miss your monthly payments. Understanding all the details related to this type of loan is vital to protecting your home ownership.

SBA Loans

When a larger loan is needed to purchase an expensive building or equipment, there are business loan programs for women provided by the Small Business Administration (SBA). Please note that the SBA only acts as a guarantor, and does not offer small business loans. The SBA reviews borrowers’ loan applications. If a loan application is eligible, the SBA issues a commitment letter on behalf of the applicant. This letter shows the SBA’s willingness to guarantee the loan, which helps speed up a lender’s approval of the loan.

There is inherent risk in financing any business activity, regardless of the type of financing you choose. The key is not to borrow too much to the point that you can’t meet the monthly payments on your business income.