8 Financing Options for Small Business Start-ups

Posted in Entrepreneurship | 18 comments

How do I find the money for my start-up business?

Money is one of the most challenging obstacles that entrepreneurs face. You need a certain amount of money to get your business of the ground. Starting a business is not like buying a home, a car or a home appliance. People won’t simply throw their money at you just because you have an awesome business idea.

Don’t fret. Lack of initial funds doesn’t mean you have to set aside your entrepreneurial dream. There are still many options available, from the traditional route to the innovative ones

First ask yourself, “How much money do I need and where am I going to get the funds to launch my business?”

Ways to Finance Your Business

1. Fund your start-up yourself

Most small start-ups are self-funded. When looking for funding, it is always better to take it from your personal income or savings. This means of self-financing is referred to as bootstrapping. Even today’s largest corporations such as Apple, Coca-Cola, Dell Computer, and Microsoft began as bootstrapped ventures.

Though it might take some time before you achieve the amount of savings you need, it means that you’ll be giving away less equity and you’ll be free of initial debt.

2. Financing help from family and friends

Borrowing spare cash from family and friends is a terrific idea. Pitching your needs to them means getting low- or no-interest payments and light repayment terms. They won’t charge you with high interest rates or give you a shorter repayment period. This is an advantage, especially in the first years of your new business. Even if it’s “easy money,” it’s still a loan that you need to pay back.

3. Seeking a credit card line or bank loan

This is a quick way to get your business up and running. Most business owners rely on their credit card line to start their business. But you need to have a good credit history and assets that you will use as collateral. Also, you need to have a solid business plan to improve your chances of getting a bank loan.

When you intend to use these financing means, always pay off the monthly balance to keep your credit history good.

In the U.S., the Small Business Administration (SBA) offers loans to assist entrepreneurs in their start-up needs without normal backup requirements. Some local businesses are also finding success in getting their loans from community banks, though you’ll have to convince lenders that your business is profitable and you’ll be able to pay back the loans.

4. Solicit venture-capital investors

Venture capital firms invest pools of money in businesses with potential high rates of return. They can even offer millions of dollars for a start-up with a proven business model, or a young business if they see its potential growth.

Some of these professional investors are firms like Draper Fisher Jurvetson and Accel Partners.

5. Get a Microloan

Microloans are small loans issued to low-income earners or those who do not qualify for bank financing. These microlenders are non-profit organizations that can offer smaller loan amounts, and they do not need a lot of documentation papers, though some charge higher interest rates than banks.

6. Start an online crowdfunding campaign

This is the newest source of funding that you can participate in. Most crowdfunding sites allow you to raise money without giving up business equity. Some sites allow businesses to raise money in exchange for products or rewards.

Check out Kickstarter and Indiegogo, two popular crowdfunding sites.

7. Social lending

This financing platform relies on the concept of peer-to-peer lending and borrowing, as well as peer-to-business lending and borrowing. It’s an easy way for individuals to apply for loans from other individuals, rather than borrow money from banking institutions. The website acts as the intermediary and sets up their terms. Of course, there are fees and interest rates involved.

Check out these two social lending websites: Prosper.com and LendingClub.com.

8. Angel investors

Angel investors are successful businesspeople who help finance start-ups. Money is not considered a loan, but equity financing. It means you’re giving up partial control of your new business to an angel investor.

Investors usually expect around 20 percent return on their investment. Most give an input on how you operate your business. Though you can benefit from the expertise of an angel investor, you have to think hard and read the terms before attaching strings to your money.

Looking for the best financing options for your business start-up?  Let Pamela Finnesand help you with some ideas.  Start by watching our business-altering video titled “The 3 Biggest Lead Generation Mistakes Small Businesses Make… and How to Overcome Them All.” We’ll reveal strategies you can immediately deploy that will enable you to out-think, out-market and out-sell your competition.  http://maximizeracademy.com/