Starting a business is difficult. You have to consider your funding options, insurance, legal rights, and so much more. One of the important steps in the process of starting a new business is figuring out how you’ll fund it. There are many different financing options available to you that can help lessen your debt. Or start your business on the right foot. If you’re on the fence about which option will work best for you, here are six funding options.
Loans
Loans from banks, private investors and venture capitalists are probably the most common sources of startup funding for new companies. When considering whether to apply for a loan, your first concern should be your credit score and your personal credit history. Although banks like to see positive credit reports, you have little control over the information that credit agencies report about you. If you do decide to apply for a loan, you’ll need to have excellent credit. A bad credit score can mean that a bank won’t lend to you, or at the very least, that they’ll charge you higher interest rates. If you are unable to get a loan, look into angel investor loans.
Crowdfunding
This option was pioneered by Zach Braff and T.J. Miller’s Crowdtilt. With Crowdtilt, people pay what they can afford for a custom t-shirt with their favorite image from Zach Braff or T.J. Miller’s film “Warm Bodies.” Zach Braff launched the project for his film, and it soon grew to over $2.3 million dollars. Entrepreneurs use the platform to raise capital for an idea, a product or to cover unforeseen expenses. Fundrise also creates real estate investment funds that allow investors to buy discounted property in high-demand locations. Here’s an article on how to make money with crowdfunding. It is one of the most common funding options these days.
The Small Business Administration
If you’re looking for loans and grants from the U.S. Small Business Administration (SBA), be sure to apply soon. SBA loans, grants, and lines of credit require a required seven-day response, while other programs can take up to 45 days to respond. SBA loans must be used for working capital, while grants and lines of credit must be used for fixed assets, machinery, inventory, office furniture, etc. If you’re looking for grant money, look no further than business plan competitions. Many business plan competitions, like Seedstars and Des Moines SCORE, are designed for small business owners, entrepreneurs, or investors to compete for funding, mentorship, and support. Here are a few other government agencies that aids entrepreneurs.
Grants
Like a tax refund, the term “grant” is actually a verb. But in a broad sense, grants are funds or grants that are awarded to organizations in the U.S. for charitable, educational, and scientific purposes. Grants are one of the most common sources of startup capital in the U.S., especially among small business owners. According to a report from the Small Business Administration, 44 percent of businesses that received any kind of capital investment did so through a grant. As a rule, grant funding is provided by organizations or foundations that are located in the recipient’s state. These grants are generally short-term, requiring you to make a minimum annual payment in exchange for the money. Nonprofit grant applications have the biggest, though not always the highest, interest rates.
Investing in Yourself
When you’re trying to start a business, you have to invest in yourself. Even though your business will require your full attention, your income will be minimal for the first year or two. You’ll need to invest a substantial amount of your income to get things rolling, so you’ll need to have money saved up to take care of basic expenses. You can save money by buying an inexpensive used car to get around or by selling extra items around the house, but you won’t be making money fast. To fund your business, you’ll need to invest in yourself by either investing in stock in your startup, buying a franchise, or taking out a home equity loan. If you use these options, make sure to keep a daily balance on your bank account that’s larger than what you’ll be using to pay your business expenses. This is one of the best funding options for everyone as its much more easier and reliable.
Conclusion
We hope you found the information you read useful. Whether you’re just starting out or looking to bring your business up a notch, you can improve your business without necessarily spending a lot of money on it. As long as you have a clear plan, you can improve your business quickly and without a lot of financial stress.
