Nowadays, small businesses have to use different ways of financing to secure enough money to get the business running. Most start-ups begin by pooling some of their own savings and personal assets first, and then working to get other investors interested once their business has grown big enough.
So
what are the different ways to get small business financing?
Here are the top three methods you may use to get your company going:
Use your own savings and personal assets
Using your own savings and personal
assets is the easiest way of funding also known as bootstrapping.
These are for people who are so confident about their small business
idea that they are willing to invest their own money in their
business. You can also offer personal assets such as your car or home
as collateral. A downside of this option, though, is when you use up
all your savings for your business and you have no other source of
income other than profits you expect from your business. When this
happens, there is a big risk involved, and you have no assurance that
your investment will yield back the profits you are envisioning.
Go for debt financing through small business loans
Another common option for funding small
businesses is through applying for debt financing through small
business loans. You can usually apply for these loans at credit
unions, community lenders or small banks. Small business loans have
the advantage of lending you money at a small interest rate. A tip to
remember when applying for a small business loan, as written by
Forbes’ Brent Geelson and taken from credit union executive Mike
Kevitch, is to “create a good small business plan, have profitable
projections and have some of your own money in the game”. These
three things are basically what lending institutions look for when
approving loans for start-up companies.
Pursue crowd funding
You may also want to try crowd funding.
Crowd funding is defined as combined efforts of small investors to
pool funds to support a startup company. What you do is make a pitch
and post your profile and relevant documents to convince potential
investors to invest in your business. What happens next is you can
either keep the funds you have raised regardless of whether or not
you reach your business objective, or you can also not get anything
when you don’t reach your target, depending on the agreements.
Crowd funding is best advised for business models that are easy to
understand, as the interest is quite high.
More Options
Aside from these three ways of securing
financing for your organization, you may also opt for another option
of funding through credit card use. Using a personal credit card to
finance operations is an alternative for start-ups that haven’t
built business credits yet or doesn’t qualify for a business credit
card yet. Before you use your credit card in funding your business,
make sure that you have a good personal credit report and that you
have been paying your bills on time.
Another way to know if you are
suited for personal credit card financing is to make certain that you
can afford the bills that you have to pay in the future for running
your organization. Finally, it would also help if you can get a
credit card that provide fixed interest rates so that you won’t
suffer later on from increasing interest rates.
Finding the right financing is really
just a matter of careful consideration and planning with your team.
Before you decide on which funding is the right one for your
business, do lots of research and ask for advice from experts.
Great Post! These are some awesome tips for people like me!
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