Entrepreneurs are the backbone of the American economy. Thanks to the internet, the opportunities for entrepreneurs are endless, which is why new businesses are on the rise once again. It has never been so easy to start a business. Anyone can open an e-commerce store or start marketing their services online and they need virtually no cash to get their business off the ground. However, if you have bigger plans, you will need some capital to bring your ideas to fruition.
Unfortunately, it is not so easy to secure money, with most lenders risk averse in the current economic climate. There is cash available, but you need to know where to find it. Here are some of the best ways to finance a startup.
Savings are the best form of startup capital. Using your own money to start a business costs nothing, but be wary of tapping into your savings if it leaves you with nothing to cover your back on a rainy day.
The next best idea is to ask a relative or close friend for a loan. If they have plenty of money in the bank and your business idea is good, they might consider investing in your startup. However, make sure you have a formal agreement drawn up, to avoid any misunderstandings.
Credit cards are a useful source of startup capital if your cash requirement is low. There are plenty of interest-free credit cards available, but unless you have a good credit rating, you will not be eligible for such deals. You also need to repay the balance before the interest-free period expires, or the loan will cost you.
Small Business Administration loans are ideal for anyone who isn’t eligible for traditional forms of finance, so if your high street bank said “no”, apply for an SBA loan. There are lending criteria, but if you think you qualify, apply for an SBA loan via a company that processes such loans.
Microloans are small business loans up to $35k. You can expect to pay a slightly higher rate of interest on a microloan, but lending criteria are more flexible, so they suit entrepreneurs with a great idea but no business experience. Many microloan lenders are non-profits, so they genuinely want to help entrepreneurs and small businesses.
If you need a large sum of money to start a business, it is worth approaching a larger lender. Many lenders have small business advisors who can provide mentorship as well as finance. It’s a useful service for anyone new to the world of business. The downside is that you will need to jump through hoops to secure a small business loan from a mainstream lender. Make sure you have a cast iron business plan and the figures add up.
Crowdfunding is a relatively modern concept, but it is proving to be extremely popular with entrepreneurs. There are several large crowdfunding sites to choose from, including Kickstarter and Indiegogo. To make a successful pitch on a Crowdfunding site, tell potential investors why you are passionate about your business, offer a great reward, and be willing to promote your campaign.
Angel investors are experienced businessmen and women who invest in startups in return for a share of the business. It is a useful option if you need the benefit of a more experienced partner to guide you on the path to success.
Choose your source of funding wisely. If your business fails, it could saddle you with a lot of debt, so take advice from a financial advisor before you sign up for any business loans.