When starting a business, there are many things to consider. The first thing you must figure out is how you are going to finance your business. In some cases, a new business owner will fund the business independently; in other cases, a new entrepreneur will need either partial or full funding. You can finance your business multiple ways, but to determine financing possibilities, you will need to assess the business and financing potential. The first suggestion is that you create a business plan that will include the business’s financial needs. Here are seven ways you can fund your business outside of using your savings.
Friends or Family
While often, when we are starting our own business, it can be met with mixed reactions. Most of your friends and family will be supportive, but you may also encounter some naysayers among them. Just because a friend or family may support your business venture doesn’t mean that they will also finance it, but if you give a compelling presentation and have the funds, some friends or family may be willing to invest in your business.
Outside Investors
Soliciting outside investors can be a great way to fund your business. Outside investors can be easier to solicit than friends or family because they will be looking at the business plan, earning potential, and impression of you. They won’t have preconceived notions of you that your friends and family may have. Outside investors are looking for investments that will earn them income, and if your company has great potential, you can attract great investors.
Bank Loans
Bank loans are the traditional option that many businesses use to finance. It is less preferred as an option because of the interest and requirements you may not meet, especially as a startup. If you have great personal credit, you can generally get some funding for your business when coupled with a great business plan. However, banks are often hesitant to back a new business regardless of personal credit due to the risks missed by your business.
SBA Loans or Business Grants
The Small Business Administration is a great way to get financing for your business, but it is also one of the most difficult ways. There is a lot of paperwork and strict requirements to get a loan or grant through the SBA. But if you can do it, the rates are great, and grants do not require payback. Even though it is a long shot to get an SBA loan or grant, it is worth the time and effort because the payoff is great.
Credit Cards
Credit cards are an option to finance your business or purchase the business’s needs, but it is the least preferred. Credit cards generally have higher interest rates, and if you max them out, you can have difficulty getting out from under the debt it will create. A credit card should only be used for business purchases if you have no other option. They can also make smaller purchases for business needs as long as you make every effort to quickly pay the balance. It is also suggested that you obtain the credit card you will use for business under its name.
Purchase Order Funding
Purchase order funding is fairly new to business financing but is gaining popularity. This type of financing works by the investor paying your suppliers directly for the goods and materials you need to start selling. You will pay the investor much like you do if they fund your business directly, through the profits you make as a business.
Crowdfunding
Crowdfunding has become an extremely popular way to finance a business or project. If successful in getting crowdfunding to start your business, the crowd invested in you will be paid back when your business becomes profitable. Crowdfunding is largely dependent on you selling your business idea and yourself. Often investors on crowdfunding sites invest from their hearts.
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