Congratulations! You’ve just thought of starting your own business empire.
It’s one of the best decisions you can take to make a positive difference in your life.
After becoming your own boss, you can purchase the Audi you’ve always wanted, or take your daughter to Disneyland Paris, just like you promised all those years ago.
But wait. While the scenario sounds like a dream come true, aren’t you getting ahead of yourself?
Yes, you are.
‘How are you going to secure funds for your business?’
Well, we’ve got the answer to that question.
In this blog, we’ll talk about some of the most common financing options in detail. Then, after learning about them, you can compare your choices and select the one that suits you the best. Sounds good?
This one should be a no-brainer.
The first option for financing your start-up is by bootstrapping.
Not sure what it is? Well, it’s a process where an entrepreneur establishes, markets, and grows a business using limited resources or money.
In simple words, it refers to drawing money from your savings account.
If you don’t have any, trust us, there will be plenty of other options to choose from.
But if you do, good.
The biggest advantage of this method is that you won’t have to deal with debts or loans right away. Otherwise, it would’ve been impossible for you to pay money to a lender when your business hasn’t even hit the ground running.
At the same time, bootstrapping also happens to be a risky option. You’re putting all your baskets in one egg. But that’s a risk you’ll have to take if you want to stand up on your own feet.
2. Friends And Family
Are you on good terms with your family or friends, and they’ve always promised to have your back?
Well, time to take them up on their offer.
It’s the next most common method of acquiring funds: getting your friends and family to make an equity investment in your business. Don’t think of it as a favor. In a way, you’re selling them a part of your company.
An important thing to keep in mind here is to know what will happen if things don’t go as planned and you have no way to repay these personal loans.
Blood may be thicker than water, but not when money is involved. Always remember that.
It’s ideal to create a financial plan first that projects sufficient cash inflow over the next few months. In this way, you won’t have to deal with angry relatives threatening to cut ties forever.
3. Credit Cards
Credit cards are perfect if you’re looking to charge expenses but pay them off later.
And there are plenty of credit card options that pay you back with incentives, such as points or miles.
If you choose this financing method, it’s better to first understand the difference between personal and business credit cards.
While you can use a personal credit card to pay business expenses, we don’t recommend doing so. The reason is that it won’t be easy for you to file taxes, and things could get ugly.
So, to avoid going through a precarious situation, reserve a business card for paying business expenses only.
Another element you should keep in mind while applying for a business or personal card is that your chances of getting a low interest largely depend on your credit scores. The better your score, the easier it’ll be to get a card.
4. SBA Microloan Program
Not many people know it, but Small Business Administration (SBA) offers a highly beneficial microloan program. They provide loans up to $50,000 to small businesses.
If you don’t require a substantial amount upfront, SBA’s microloans would be perfect for you. And that’s not all. You’re likely to get competitive rates from SBA as compared to other financial institutions.
It’s essential to note here that SBA doesn’t directly provide you with the loans. Instead, they work with intermediaries who fund the loans.
You won’t have to deal with long-term loans with SBA, and you can get free in as little as six years.
Yeah, we were pretty surprised to hear the term ‘angels’ too. But it’s befitting if you think about it.
Also called equity investors and angel investors, angels are individuals with plenty of cash who provide capital to small businesses.
This is one of the few methods of financing your business that doesn’t involve borrowing money.
Working with angel investors comes with incredible advantages. For starters, you won’t have to worry about paying back.
It means that for some reason, if your business doesn’t perform as you were expecting, you won’t be crippled with a significant amount of debt.
However, just as they say, always look at both sides of the coins.
In this case, consider this: equity investors are only willing to provide capital if you offer them an equity stake in your business. Thus, you’re allowing them to have some control over your business.
So, you need to make your peace with it.
All the funding options we’ve discussed in the list come with their fair share of risks. Ultimately, it’s going to be your decision. Only move forward with it if you’re completely satisfied.
If you’re having second thoughts about selecting one of the options, our guidance is exactly what you need. First, we’ll assess your financial condition carefully and then suggest which alternative would benefit you the most.
Ready to consult?