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Getting the right financing strategy is a vital component in starting your business and keeping it on track. That’s why it’s wise to know about the different financing options and understand when they might come into play.
However, with the many financing options available, finding the one that suits your business can easily become overwhelming. Fortunately, a number of reliable companies like Mango Credit are now available to support businesses of all maturity levels. In addition to loans, you can also try different startup options to fund your business. Here is an overview of nine startup financing options to be aware of.
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“Bootstrapping” is the most common type of start-up funding. With this financing option, the entrepreneur invests his or her own money to get the business off the ground. This structure is convenient for budding entrepreneurs who lack experience in formulating a business plan and the strategies to raise financing. That said, bootstrapping isn’t sustainable. Therefore, it’s wise to develop a business plan, preferably in conjunction with an accountant, prior to investing funds.
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2. Family and Friends
This can be the most convenient option to access financing because family and friends trust you. These people are most probably willing to lend you the money to fund your business. They will support you and not criticize your business plan or methods. Also, they will often allow you to repay the money without interest. They may agree to a longer repayment period.
The downside is that borrowing money from relatives or friends can be risky, as unpaid personal loans are renowned for ruining relationships. To prevent this undesirable scenario, it’s best practice to place all the loan details in writing. Be sure to include the amount, term, and exit strategy (i.e. how you’re going to pay the loan back). This should also include what happens in the event that you can’t make payments.
3. Financing Grants from the Government
Accessing funding through government grants is another option for financing that can get your start-up off the ground and progressing quickly. The good thing is that government grants can provide funding without the need for equity. They also extend over many sectors and industry classes. However, a major challenge when getting a grant is creating a credible business proposal and adhering to the criteria.
4. Business Loans
Getting a business loan can be a good financing option. It can be better than a personal loan, as it separates the company from individual funding. This is “cleaner” from a tax perspective. It also reduces the business owner’s exposure.
There are many types of financial institutions that provide business loans. These include banks, building societies, and, increasingly, specialist lenders. A perfect example of this type of financing is Mango Credit, which has been providing business loans to Australians since 2001. The advantage of a specialist lender is that they’re usually flexible in their lending criteria. Also, they require minimal documentation and are quick to process funding.
5. Venture Capital
Venture capital comes from investors who provide funding for startup businesses that they believe have growth potential. With this kind of financing option, investors balance the opportunity with the potential risks in their funding assessment. Venture capitalists also often share their expertise to support business growth.
6. The Option of Equity Financing
Equity financing is aligning with another investor to fund your business and be a part-owner of your company. This involves giving your investor some control over your business.
7. Crowdfunding as a Financing Option
The principle of crowdfunding is to raise small amounts of money from a large number of people, typically via the internet. A lot of business owners use this device not only to raise funds but also to test the feasibility of the business concept based on the volume of investors. The main challenge with this approach to financing is that you have to reach the funding target. Otherwise, you need to return the investment to your investors.
8. Bank Loans
Banks can be a good source of business loan funding if your business has been operating for a few years. This is especially true if it has solid cashflow and a good credit history. The upside of financing with a bank loan is that the interest rates are competitive. The downside is that bank loans often take quite a while to process and release the funds. The criteria for funding are also usually quite strict.
9. Business Accelerator Funding
According to BCD, “A business accelerator is a program that gives developing companies access to mentorship, investors, and other support that help them become stable, self-sufficient businesses.”
Companies that use business accelerators are typically start-ups. However, these are companies that have moved beyond the earliest stages of getting established. This means that this structure of financing not only gives you access to capital but also to mentorship and other support that can help your business to become stable and self-sufficient. Business accelerators also are renowned for providing logistical and technical assistance, as well as valuable industry connections.
Choose Sound Financing Options and Enjoy Greater Success
Understanding the different ways you can access funds will help you choose the right approach to starting your business. While building connections and creating a solid business plan are both crucial, getting the right financing can also have a big effect on the success of your business.
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