A great business idea means almost nothing without the funding to help turn it into a reality. Maybe you’ve had a great idea in the past, but had no idea how to make it happen, or you have one now and want to get started right away. Whatever the case may be, you’ll need to secure a certain level of funding to cover the startup and continuous costs of running a business long-term. Here are five ways to secure funding for a new business.
1. Traditional Small Business Loan from Your Bank
One of the simplest and most popular routes that many prospective business owners take is securing a small business loan from a bank. The Small Business Administration has a program specifically designed to help current or prospective small business owners find the right source of funding to meet their specific needs.
Bank loans can be difficult to obtain without a solid business plan and a good credit history. Banks will want to know that the capital they’re risking has a chance for success, and will usually require in-depth information on both the prospective business and your personal credit history.
While traditional bank loans are certainly an option, they aren’t your only option. Don’t make the mistake of thinking that your business can only be launched if a bank will agree to loan you several hundred thousand dollars.
If you’re trying to get your finances in order, you may want to consider hiring a financial advisor. You can compare financial advisors in Illinois on Carefulcents.com if you’re interested in learning more about their services.
Investors put up capital to fund businesses in the hopes that their initial investment will pay dividends in the future. Investors can opt into partial ownership of the business as well, which can make the process a bit more personal.
If you don’t plan on sharing the success of your business with anyone else, you may want to consider another option. Investors will have a certain say in specific business practices and will expect that their investment creates a return. While creative control will still remain with you and the company, having someone breathing down your neck all of the time isn’t for everyone.
Investors can be found in the beginning stages of a business, but are usually reserved for when the business begins to grow and show promise. With the right boost in funding, your business’s potential could skyrocket.
3. Personal Loans/Investments From Family/Friends
While it can be nerve-racking to ask mom and dad or your well-off best friend to borrow money for a business, this might be a good first step when considering starting a new business. Friends and family can often be more receptive to the idea of lending someone close to them money, and you’ll likely have much more flexible repayment terms with a personal loan from your rich Uncle.
Approach friends and family in the same way you would a bank. Provide your business plan, projected profits, the whole nine yards. You’ll want them to feel at ease when they agree to loan you money; just saying “Can I have $50,000 to start a restaurant?” probably won’t get you results.
It’s important that you pay back any money you borrow from any lender, but especially from friends and family. Money can be the bane of any relationship if not taken seriously, and you’ll want to show the lender that you are appreciative of their efforts by paying back the loan within the specified time frame. Having a falling out with your parents and defaulting on a loan only makes things worse.
Crowdfunding has become a popular option for all manner of business. With platforms like Kickstarter, you can pitch a business idea to the general public, and you’ll have money pledged to your idea directly on the website. With over 10 million people involved in various projects from around the world, Kickstarter is a global community of incredible scale and resources.
Crowdfunding takes away the worry of defaulting on loans. Though you’ll usually need to deliver the product or service you’re funding, there are no high-interest payments or anything of the sort. Your patrons are simply funding an idea that they stand behind, in the hopes that they’ll benefit from the idea once it’s been set in motion.
The great thing about crowdfunding is that it’s pretty much available at any point in your business’s lifespan; whether you’re just starting out or trying to expand your reach to new countries.
This method of funding is usually best reserved for the beginning stages of your business, when you’re still testing your idea and trying to create working prototypes or a business plan. You’ll pool your own financial resources to fund this aspect of the project, in the hopes that what you create is enough to impress a lender with greater financial resources at their disposal.
Bootstrapping can work even if you have limited money available to you. Many business owners have started with only a little bit of cash and an idea, and are now millionaires. Did you know that the late Steve Jobs and his partner started Apple with just $1,300? Jobs even had to sell his car to raise the funds!
When you secure your own funds, you don’t owe anyone anything; and that’s the true empowerment that comes with being a business owner. Knowing that you did everything on your own, with your own money, is incredibly motivating and inspiring.