With benefits like being the boss, making more money and controlling your schedule, it’s no wonder some 543,000 small businesses are started each month.
Probably the most pressing concern about starting a business is how to obtain business funding. If you are wondering how to finance your startup, here are 5 effective methods you can use.
Crowdfunding, one of the popular financing options, works by raising funds through specific websites that are set up to help you share your goal and finance your business.
With crowdfunding, you’ll raise small amounts of money from a large collective of people, including friends and family, as well as strangers who connect with your company. This method of funding is most effective when you offer incentives for donations and share a clear cause or mission for your company.
2. Angel Investor
An angel investor is a person who helps fund your business in exchange for equity or convertible debt. Finding an angel investor is one of many ways of financing a business, especially if it’s hard for you to find any other funding.
Typically, an angel investor will receive a larger-than-normal return on their investment, making it an attractive opportunity for the person investing. There are many pros and cons to having an angel investor so it’s best to do your research and make sure this is the right method for you.
3. Small Business Association (SBA) Loans
The SBA has a variety of loan programs, from small to large, all backed and guaranteed by the government. This organization does not lend money directly, instead, they work with various lenders to provide loans to small businesses.
Aside from receiving help with funding, the SBA also provides business counseling and has an extensive learning center to help you start and run your business.
Tip: not sure if you qualify for an SBA loan? Try funding your business with an asset-based loan.
4. Business Line of Credit
A business line of credit is like a small business loan and a line of credit combined. With this method of funding, you’ll borrow a certain amount of money and pay interest on a percentage of what you borrowed.
You can then use and repay the funds however you want, as long as you don’t go over your credit limit. Depending on the amount you borrow, it’s possible to get an unsecured business line of credit.
5. Personal Savings
Did you know that 77% of small businesses are funded with personal savings? This method of funding is not as risky as other methods but it does limit you on how much you can invest in your business.
If you plan on using your savings to start your business, it’s good to have a safety net, such as:
- Keeping your day job or working part-time
- Maintaining several months of expenses in your savings account
- Borrowing from your 4O1K (responsibly)
By taking precautions, you can fund your business and still have financial stability during any lean months.
How To Finance Your Business: The Bottom Line
The question of how to finance your business should be the least of your worries when you are beginning your business journey. There are many different methods of business funding, you just have to find the one, or two, that works best for you and your business.
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