Your dream of owning a business isn’t so far fetched as you might think. We live in a paycheck to paycheck type of world, so obtaining the funding you need to run a business can prove to be difficult. However, it is not impossible!
The scariest part of running a business is the day to day expenses needed. Everything from start up cash, to marketing, to products, staff, payroll, supplies, and everything else. The only way to get all of these is with money. Or is it?
Without a doubt, financing is an important part of opening and running a business. You need to spend money to make money, but you do not need to swindle your entire life savings to do so. Those results would leave your business idea just that, an idea, but you want more than an idea, you want an actual business that can outlast its competition and help consumers get what they need. To help you with this, here are the top 10 of the easiest ways to get the financing you need to launch your business.
The information provided here will give you ideas for financing your business. Think of it as a guideline of what to do when you decide to open your own business and how important business finance is to a small or large business owner. While it leans toward small businesses and mid-sized businesses, any business owner may find it beneficial for their business ventures.
The Basics of Financing a Business
There are two main ways to finance a business–debt and equity.
This is a line of credit or loan that you are approved for but must be paid back within a certain amount of time. Many loans require assets for security that they will be paid back in full and on time. Assets can include mortgages, vehicles, or another valuable asset you own. These are secure loans that need collateral in order for you to be approved or for the loan to be processed.
There are also unsecured loans available to small business owners, and you will not have to offer the lender collateral. Keep in mind that unsecured loans may have higher interest rates and limited funding, but even if your credit is less than perfect, you may be able to obtain one. Secure loans are a little harder to get, but you can compare your choices when searching around for a lender.
This method requires you to sell a part of your business, known as selling an equity stake. The plus side to this method is that you often do not have to pay back the loan, since the owner of the stake gets all of the benefits, rights, and cash flow it is associated with.
No matter what product or service you are offering, they all have financing solutions that include debt and equity. Sometimes the two are combined. The best solution for you is to find the one that fits your personal and business needs as well as your circumstances and current situation.
1. Utilize those Credit Cards
There is no doubt that credit cards can work to finance your business and add longevity to your cash flow, especially those credit cards with no limit. Many times, by using your credit cards to make purchases from suppliers you can receive discounts, some protections, and other rewards. However, keep in mind while credit cards may provide you with fast money, they also have their downfalls such as they directly affect your credit score.
With many credit cards, holders are able to apply for a cash advance. The downfall here is that cash advances often charge higher interest rates and can be expensive. They are however beneficial as a last resort if you do not mind paying their higher rates.
Perhaps the easiest way to finance your business is by using your own money. By doing this you will not have to rely on other investors or financing unless you create it yourself. This may be the easiest way, but it is not always the smartest, it can depend on the type of business you have and what you will need to help it prosper.
Aside from saving the money this way, many entrepreneurs will take money of out their mortgage, like a home equity loan, as well as retirement plans or insurance policies in order to fund their business expenses. The obvious downfall to this method is that if the business fails, then losing your retirement, home, and insurance is not out of the question. Statistics report that many small businesses do not make it past their first five years so the odds are not in your favor.
3. Getting Loans from Family and Friends
Borrowing money from friends and family is a hard decision for business owners and individuals alike. No one likes to be in debt to their family or friends, it’s just human nature. But sometimes, desperate measures cause us to do just that.
Instead of approaching them and just asking to borrow money, you can try asking for a business loan or if they would like to invest in your company, products, or services. Should you decide to approach friends and family for help, keep in mind a few things that could affect the future of your relationship because people are often wary of investing their money in ideas that may not work. The risks for such a venture include:
If the business fails, your relationship could be damaged.
Damaged relationships are risky enough, do you want to take the chance? Is your idea so good it’s worth the risk?
The risk of taking on a business partner you didn’t ask for, is it worth it?
Are you willing to listen to them for advice as if they were a silent partner?
Accion is one of the largest small business networks in the United States with offices in all 50 states. They are a microfinance company that is similar to the SBA Microloan program. Their services include start up loans to $10,000 as well as funding for other or ongoing business concerns you may have.
Their main requirement for you to get approved for a loan is that you need to be in business for at least six months and prove that you have the proper cash flow to repay the loan, as well as a few other requirements you can discuss with your lender.
5. SBA Microloan Program
The SBA, Small Business Administration offers business owners a microloan program for those needing funding. It is a very helpful program that not many business owners know about. It is possible for a loan of up to $50,000 for small business owners. The confusing part about this program is that the SBA doesn’t offer the loan directly to the business owner, they use people known as intermediaries to fund such loans. Some of these intermediaries may require you to go through a training program in order to obtain the loan. They can also provide borrowers with management assistance for their small business.
The one advantage of an SBA Microloan is that even though they have additional conditions that must be met, their services often prove to be invaluable and increase your chances of running a successful business.
6. Angel Investors
These are small groups of individuals who invest in small businesses by making equity purchases. The often provide business owners with guidance, money, and expertise to help owners to start and grow their businesses.
When choosing to contact an angel investor, it can sometimes be a bit difficult to get their approval. The investor generally wants to see that the business has growth potential as well as a solid business plan that includes an exit strategy. A viable exit strategy is something that allows the investor to recover any lost funding and reclaim their profits from the business. Their timeline is roughly around 3-5 years.
This method of funding has grown in popularity in recent years making it commonplace in the present day. How factoring works is simple, it provides your company with reliable funding if you are having financial problems within your business. With this method, clients are allowed to pay for their invoices over a short period of time instead of all at once. A downfall to this method is that you can only use factoring if you work with the government or commercial clients that have high credit scores.
When you use factoring correctly, you will see a difference in your business cash flow and be able to take on new clients.
8. Obtaining Lines of Credit and Business Loans
Lines of credit and business loans are the most well-known methods of financing a business. Banks lend you a specific amount of money and a certain period of time to pay it back with interest. Lines of credit are extended to business owners in much the same way except that they can be used when needed and paid back on a regular basis, just like the credit you receive with credit cards.
Either option can sometimes be difficult to receive due to certain requirements or other cash flow proof that you will need to show. As always, their main concern after approving a loan is getting their money back, on time. It is difficult to obtain such a loan at times because they want to know that your business cash flow is enough to pay them back. They also like to know that your business can generate enough cash flow to do so and that your assets can be proven as substantial enough to not make your business high risk.
9. Purchase Order Funding
Purchase order funding has greatly been gaining in popularity in recent years also. It is designed to help those companies that resell products for higher prices in order to pay their suppliers. The finance company or lender will pay your supplier directly so that you will not have to. This can help you fill larger orders for your product or service.
The use of Purchase Order Funding is beneficial for smaller companies that have received large orders and need funding for their suppliers immediately. One downfall is that is only works properly for those transactions are in higher margins and do not require customizing products.
10. Fundraising and Donations
If you feel strongly enough that your business idea will benefit the general public and targeted audience, you may want to consider running a fundraiser. Fundraisers can be done the traditional way or online now, with little to no money to start them. Fundraisers can include bake sales, clothing sales, arts and craft sales, and even garage or yard sales.
Donations work the best if your business idea is for a non-profit organization such as a resale store and most or all of the profits are donated to a charitable cause. The general public enjoys buying from resale and thrift stores, and they enjoy knowing that their donations will go to a good cause that they believe in.