Launching a business is fraught with challenges, especially when you’re just starting. Essential requirements such as rental space, new staff, inventory, and office tools and equipment, can cost an entrepreneur a few thousand dollars.
Unless you’re willing to spend your lifetime savings, you’ll have to look for ways to raise a substantial amount of cash. Fortunately, there are several funding solutions available to small business owners. Below are some of the options to get started with your journey as an entrepreneur.
Get A Business Loan
Banks, credit unions, and government-backed lending instruments are often the initial go-to places for borrowers, including entrepreneurs. These institutions have loan products customized for various business needs. If your business needs to expand inventory, embark on research and development, or spend on new business equipment, you can approach these agencies for assistance.
It can be challenging to get approved for a loan if you don’t meet specific requirements for loan approval, though. A borrower must have a good credit score and history and that the business is in good financial standing. If you need startup funds, you may have to put in collateral.
Some entrepreneurs refuse to take business loans because of stringent requirements and high-interest rates. But there are better choices out there. Here’s a recommended reading for first-time business borrowers. Don’t forget to shop around for the best deals and lowest interest rates.
Look For An Angel Investor
Angel investors can provide you with mentorship and business funding of up to USD$100,000 in the early stages of your company. These individuals are often retired or active business executives who are willing to share their technical knowledge, expertise, and cash with promising startups.
These investors will have to thoroughly evaluate your business plan and model before providing you with the cash and valuable advice that your business needs. They also require a stake in your company in exchange for these benefits.
Approach Venture Capitalists
Starting a business requires sharp focus and grit. But it doesn’t mean that you should do it on your own. If you believe in your product and its profitability, connect with venture capitalists willing to spend for your business expansion. This funding option works best for businesses operating profitably for at least a year because the amount of investment can be substantial. It’s hard for venture capitalists to study your enterprise’s scalability and profitability without a baseline.
There’s one downside to this option, though. Venture capitalists will provide your business with expansion opportunities in exchange for equity. As a result, you may have to give up some control of your company.
Tap Non-traditional Channels
The digital space not only serves as a channel for business exposure. It can also help newbie entrepreneurs to look for alternative funding solutions. If you can’t access traditional lenders, search the internet for other options such as peer-to-peer lending or crowdfunding.
- Crowdfunding: This type of business financing option works by allowing a business owner to pitch the venture on the site. So, if you’re interested, have your business description, plan, and objectives ready. Users of the site can choose to donate or purchase the product once it’s on the market. The good thing about crowdfunding is that you can use it to increase brand awareness, too. Some successful startups started in crowdfunding sites before getting noticed by venture capitalists.
- Peer-to-peer (P2P) lending: Engaging in this type of funding option requires a P2P platform to match your business with an online lender. As traditional financial institutions, lenders or investors in these platforms may offer secured and unsecured loans to personal and business borrowers. Multiple investors also provide different types of loans, qualifications, and interest rates. Perform due diligence to find out which offer suits our business best if you’re taking this option.
Use Your Funds
It can be challenging to get approved for additional business funding, especially if you have no business records to show. Instead of getting a commercial loan, you can take a personal loan instead.
If you’re willing to invest some of your assets in your venture, lenders may be more inclined to allow you some access to a funding boost. Applying for a personal loan or refinancing an existing mortgage shows that you’re making a long-term commitment to your business.
Before taking this route, make sure that you have the repayment capacity. A mishandled personal loan for your business can have severe consequences to your credit reputation.
The Bottom Line
Before choosing the best funding option for your business, understand the terms and conditions to ensure it matches your business requirements. Don’t forget to ask for advice from other companies or financial experts so you can make intelligent decisions.
Without efficient cash flow management and access to proper funding, a business will lose its competitiveness. So, make sure that your enterprise can turn additional funds into earnings to attract more investors.
