Starting a new business can be thrilling. If you’ve come up with a fantastic business idea and worked on the proof of concept, you probably can’t wait to leave your nine-to-five behind and start working full-time to get your business up and running.
But there are plenty of obstacles that could damper your enthusiasm for starting your own business. One of the biggest obstacles for new businesses is obtaining the necessary funds. No matter what kind of business you’re planning to start, you’ll need to invest quite a bit of money to get started. Whether you’re planning on taking out a business loan, or you think you have enough of your own money saved to start on your own, it’s a good idea to explore all of your options and consider the pros and cons of each one.
What options do you have for funding your new business? You may have to use more than one, but here are some options to help you get started:
1. Use your savings.
Most people who want to start a business start by using their own savings to fund their new venture. It’s a risk, and it can be scary to use your life savings to start your business. But how are you going to convince anyone that your idea is worth investing in if you don’t invest in it yourself? Investing your own money also helps you to avoid starting off with a lot of debt.
While it’s a good idea to use your own money for your business, that doesn’t mean you should empty all of your accounts. You need to look at your financial situation and calculate how much you can reasonably invest in your business. If necessary, you might decide to save for a little while longer before you leave your day job. Cut back on unnecessary spending, and save some money for six months to one year of living expenses so that when you do leave your job you have something to live off of until your business is profitable.
What if you don’t have much money in savings? Try looking at ways you can downsize by selling property and possessions. If you have a house, you can sell it and move to a smaller home or take out a home equity loan. Sell your car and walk or bike to work. Look for ways to raise a bit of your own money to start your new business.
2. Ask family and friends for a loan.
If you have family and friends who are excited to support your new business, why not ask them if they can loan you some money? Of course, every relationship is different. For some, asking family for money is no big deal, while others may not be comfortable doing so. But most people have someone in their life that’s supportive and would consider loaning them some cash.
There are a few downsides to this option. Unless you have wealthy friends and family, most of the time your loved ones won’t be able to afford to give you a large sum. Also, you should consider how your relationships might be affected if you borrow money from people close to you. Even though you trust your friends and family and vice-versa, it’s always best to put things in writing and sign an agreement in case things go south.
3. Get a business loan.
You can get a business loan from a bank, credit union, or online lender. A loan allows you to borrow money without giving up equity in your company. But it’s not guaranteed that you’ll qualify for a small business loan. Most banks will want to see that you have good credit. You may have to attend a meeting before you get approved for a loan. You should have a solid business plan and financial projections to show when applying for a loan.
In the U.S., the Small Business Administration has several programs that offer guarantees for small business loans. These programs make it easier for small businesses to get approved for a loan.
If you choose to take out a business loan, you should compare different banks to find one that meets your needs. Each bank or lender has its pros and cons, so take time to consider which one is right for you.
4. Find an investor.
Many businesses are willing to offer some equity in their company to an investor that can help them both financially and with their experience and network. But before you give someone equity in your business, you should consider if it’s worth it and how much control of your business you are willing to give up.
Venture capitalist firms usually look for companies that will grow rapidly and require a large investment. They may require some control of your business, and their very picky about what kind of companies they invest in.
Angel investors, on the other hand, are usually wealthy individuals that invest in startups. They may focus on a specific industry or type of business and can provide you with guidance and contacts to help your business grow.
Whether you’re in the initial stages or you’ve already started your company, you must obtain enough capital to keep your new company thriving. Whether you decide to use your own money, take out a loan, or find an investor, take the time to consider your options carefully.
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