Featured image by Michael Longmire from Unsplash
So, you have a billion-dollar business idea that you can’t wait to turn into a solid company? There are very few things that compare to a beginner entrepreneur’s enthusiasm. However, before your big idea can be turned into a business, you need to take care of an important aspect. Funding for your business.
Whether you are planning on opening a restaurant, a small boutique, or the next big tech company, most businesses require at least some initial capital to get off the ground for the first few months. However, what’s there to do if you don’t have the money? Set your dream aside and hope one day you will be able to fulfill it? No! This is not how a successful entrepreneur thinks.
A successful entrepreneur starts looking for ways to gather the money they need to fund their business. However, it’s understandable if you don’t know where to start looking. In order to help you out, below are five of the most popular ways you can fund your new business.
Bank Business Loans
This is the first option that comes to the mind of any entrepreneur looking for funding. They are the most traditional way to finance your business but, unfortunately, they are also the hardest loans to obtain. That’s because banks are looking to make money. They make most of their money from big loans. Small business loans for entrepreneurs at the beginning of their career normally don’t make the banks high profits.
To qualify for a bank loan, you will need to come up with a stellar business plan and present it to the bank. If you qualify, you will have to pay a set interest rate and comply with their requirements. Some banks will also require collateral in the form of other business assets they could seize in case you are not able to pay your loan in full. This is not a problem for established entrepreneurs. However, for someone looking to start their first business, it may be difficult to come up with the necessary money.
Funding Your New Business with Personal Loans
If your business only requires a small amount of money to finance it, then you can consider taking out a personal loan. Business loans are difficult to obtain, especially for small sums of money and when you have no existing business revenue. Personal loans can substitute this to fund your business.
Instead of taking into consideration business characteristics, a personal loan depends on individual characteristics such as your health, your credit score, and your income. This means you won’t have to spend weeks perfecting a business plan that appeals to the bank or go through the exhaustive screening process most banks do when it comes to small business loans.
Usually, business loans don’t exceed $35,000, but some lenders top out at $50,000, so you need to do your research well beforehand. Yes, it may sound like less money than you need. But, maybe combining a personal loan with other methods of funding on this list will allow you to come up with the necessary money to set things in motion.
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Crowdfunding for Your New Business
Crowdfunding aims to take away the traditional approach to raising funds for your business and turn it into something more accessible for young entrepreneurs. Instead of pitching your idea to banks in the hopes of getting a business loan, you pitch it on an online platform. This gives you enough room to lay out your plans and present them to the world in a way you find most appropriate.
The way investors give you money depends on the type of platform you use. Some work similar to equity investments, while others work on a reward-based model. This ultimately depends on your needs and goals, so it is up to you to decide. Keep in mind that some platforms only release the funds to you when your campaign reaches its funding goal. So, you will need to raise all the money before you can actually use them.
Asking Family and Friends for Help
What are friends and family for, if not to help you out in times of need? Compared to other funding methods, such as banks, which will demand a flawless business plan and a dozen financial statements, your grandma, best friend, or cousin won’t usually ask for more than their money back in a set period of time. Unfortunately, asking friends and family for money is not always easy, is it? If you are not careful, you can easily jeopardize those relationships.
First and foremost, make sure the person you are asking for money from clearly understands this is a loan. It’s not an equity investment or a donation. Be sure they understand they will be getting their money back in a set period of time. Make sure you set the rules clearly and that both parties approve of these rules before finalizing the transaction. If possible, get everything in writing, so that both sides feel more comfortable and secure about the transaction of funding for your business.
To put it simply, angel investors are business people who are willing to use their money and finance new businesses with high growth potential. Howver, before you start looking at them as heaven-sent, you need to keep in mind a few things.
For starters, an angel investor won’t give you a loan to fund your business. What you receive from them is an equity investment. This is when the investor basically purchases a share in the ownership of your company. This means, in return for their money, you will be giving away partial control of your newly-founded business.
Usually, angel investors ask for a 10% stake in your business, but it depends on how much of a risk they are willing to take. For businesses that appear riskier, they can ask for as much as 50% ownership, so be very careful.
Finding the proper way to fund your business takes time and resources. There is no way to determine exactly which option is best for you without properly analyzing all of them. Take the time to weigh in your options, ask around for opinions, and only make a decision when you are certain of it. After all, it’s your financial future at stake, right?
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