Having brilliant business idea is not enough to ensure business success. To start a business, you need to have sufficient financing to execute your plans. There are many ways to finance your business. This list is just a few of the most common ways:
Ways to Finance Your Start Up Business
Friends and Family: Borrow funds from friends and relatives. This can be tricky, but its the place most start up business look first for financing. One advantage to borrowing from a friend or relative is it does not involve a credit check. There are also no documentations to be submitted.
However, it is strongly recommended to put all the terms of the loan in writing. Make sure that you are clear on whether this is a loan. Or if they are investing in the business as potential partners. If its a loan, put the terms of repayment in writing. If they are investing and will be looking to get a piece of the profits. Make sure that’s in writing too. While friends and family is the easiest type of financing to get. Its also the hardest! Money can tear apart even the strongest of families. Putting everything in writing can help deal with problems once the business is a success or a failure. A written contract will prevent arguments and unnecessary heartaches that can be brought about by misunderstandings or confusion.
Get a bank loan: If borrowing from someone you know is not possible, then you can apply for a business loan from your personal bank. Since you have not yet established your business credit, your personal credit history will be considered when your loan application is reviewed. Be prepared to submit collateral as most banks only offer secured business loans to start up businesses.
Find An Angel Investor: Look for angel investors who may be interested in partnering with your business. An angel investor can be an individual, household, or an independent group that invests on businesses. Don’t just accept anyone as your angel investor. Try to find someone who has some experience in the type of business you are starting. Most investors will want to have a percentage of ownership. Which means they will have a say in your business. Its better to find someone who can not only help with the financing, but may have contacts that can help the business grow. Make sure you get everything in writing. And make sure you have agreed on an exit strategy.
Government Grants: Check if you can qualify for a government grant. However, be prepared to wait in line. If you want to start your business immediately, you may have to look for alternatives. Government grants are few in number with not hundreds but THOUSANDS of applicants. Many people hire professional grant writers to help get an edge of the competition. Counting on grant money is not wise. Apply for it, but keep looking for other ways to get your business financed.
Equipment Leasing: Lease your business equipment. Purchasing equipment – whether used or brand new may involve a large sum of money. Therefore, why not consider equipment leasing? Leasing gives you the option to get the equipment you need right away, pay for them in installments, and keep most of your cash liquid, instead of it being tied up in equipment. Keep in mind that most banks won’t give a new business a working capital loan until they are more than 3 years old. If you spend all your money on your equipment, at some point you may need some working capital and you won’t qualify for a traditional working capital loan. Equipment leases can also be added to your Dunn and Bradstreet, so you are building credit for your business.
Apply for a Business Credit Card: Having a business credit card will provide additional financing assistance especially when unexpected expenses arise. Plus, you can build up your business credit history easier as long as you can keep up with your credit card payments on time. Before applying check your credit. Make sure you have removed negative info. Banks that issue business credit cards usually want the applicant to have excellent credit.
Apply for a Home Equity Loan: A Home Equity Loan is a type of a secured loan which allows the borrower to withdraw funds as long as the amount does not exceed the home or the collateral’s value. It can be quite risky since you can lose your home to your lender if you fail to pay off the loan on time.
The business loan expert, Irish Taylor, has been with Startup Business Loans since 1992. She has been inspiring entrepreneurs and small business owners with start up business financing ideas and techniques. Through the years, she has helped provide clients and people with solutions to loan and credit issues related to new business financing, SBA loans request and new business loans.