When you are implementing a business plan for your startup, funds are a major headache. While the emergence of multiple unconventional lenders has made it easy for businesses with a track record access loans, the story is different for new startups. Basically, there are few lenders who are willing to finance a business with no revenues and plagued with uncertainties. Here are some viable options for financing your business.
SBA loans and non-profit microloans
The SBA has established a program where it gives you up to $50,000 to fund your business. However, the average loan amount barely goes beyond $13,000. Considering the available amounts, this may not be sufficient if you are looking for a bigger investment.
If your business is already established and you have a few assets, you can try out the 7(a) SBA loans which are ideal for expanding business operations. However, they tend to have strict qualification criteria and the application and vetting process can last several months.
If your finances aren’t that good, getting a non-profit microloan can be a good idea. Most lenders in this field specialize in funding traditionally challenged and minority business owners. In addition, if your business for in a community that has been plagued by economic struggles, then you can qualify easily.
The good thing about these nation 21 loans lenders is that you get favorable loan terms that help you to build your business. It’s also a great way of to business credit and increases your chances to qualify for other funding options.
Today crowdfunding has gained popularity among startups thanks to innovative platforms that make it easy to run effective online campaigns. In rewards crowdfunding, you don’t need to pay back the money but instead; you offer them your products and services.
But there is also equity crowd funding where you offer equity to the investors. However, this option is relatively new and it’s still evolving. There are many regulations put in place and they are meant to safeguard the interests of inexperienced investors who might be easily exploited.
If you already have a great product and you want to get it out on the market, crowdfunding can be a great way of getting necessary exposure, validation, and funding.
Selected family and friends
While you may be having several friends and family members, not all of them are created equal. Before tainting your relationships, it’s wise to assess each friend and family member individually to establish whether they can lend you some money without compromising the relationship.
If you are not sure about how the relationship will turn out after introducing money into the picture, you’d rather leave it out. Basically, a new business can go under and damage your relationships severely due to the money you owe the friends.
In addition, you might end up discouraged after asking for some money from your closest family members and they act in a way that shows they don’t believe in your capacity to run the business. But if you have people close to you who are willing to take the risk, it’s quite important that you make the deal formal. Ensure that you have agreed to the payment terms and have a clear understanding of what is expected of you.
Business lines of credit
A line of credit is a popular option for most business owners since it offers outstanding flexibility and freedom. Unlike a normal loan where you borrow a huge amount of money at once, lines of credit allow you to only take what you need at any time.
After getting approved for the loan, you are allocated a pool of funds that you can tap into when a need arises. In addition, you don’t have to make a new application to utilize the funds instead; you just withdraw what you need.
However, you have to make regular payments to replenish the available funds and the payments cover interests as well as the principal amount. Lines of credit can be used to provide operating capital as well as any other business expenses.
Venture capital and business angels
Venture capitalists are a group of wealthy individuals who have come together to create a pool of funds to finance startups. They work through firms that give you the money to run your business in exchange for some equity in your business.
Because they expect high returns on the investment, most VCs insist on taking an active role in running the business. As such, if you are not comfortable with giving away control of your business, this is not a good option for you.
On the other hand, business angels tend to be more lenient with startups. Although a business angel gives you lower amounts compared to VCs, they are willing to invest in the business owner as well as the business.
Getting the appropriate financial solution for your startup is critical to ensuring that you will continue to make profits. Because each business is unique, it’s important to understand your business and choose the right funding option.