Tips to fund a business
If you would like to become a business owner, you need to determine how you will fund your business. This article will help you choose a way to fund your business as it will help you know of the different ways to get money to start your business. So, without further ado, here are the different ways to fund your business:
1. Savings
This is the easiest way to get money to start your business and entails using your own money to start a business. As an aspiring business owner, you would like to save money for a certain period of time and use the money saved to start a business. However, the problem is that the amount of money you can save prevents you from starting your business.
Some business owners take saving a step further and start a business by taking money out of their homes (via a home equity line of credit), insurance policies, or retirement plans. However, the problem with this strategy is that it is risky because if your business fails, you could end up losing your retirement, house, or your insurance. Keep in mind that many small businesses fail in the first 5 years. So, the odds are stacked against you.
Our take on this: Saving is a good way to fund your business. However, we don’t support using home loans, retirement savings, insurance loans, and related sources to fund risky business ventures. It is important to speak to a qualified financial advisor if you would like to do so.
2. Credit cards
Using credit cards is an effective way to finance your business and increase your business cash flow. You can use these cards to pay suppliers and earn rewards like discounts and certain protections. However, the problem with credit cards is that they are directly tied to your credit score.
Cash advances are another way to finance your business. Many credit card companies set limits on their cash advances and charge high rates for these. This makes cash advances expensive but the good thing about them is that they can be useful as a last resort.
Our take on this: Credit cards can help you extend your working capital and mitigate cash flow problems particularly when you use them to pay suppliers. However, if you are going to use credit cards, don’t overextend yourself and remember that your credit score is affected by how you use your credit card. Similarly you can opt for a Cobra Payday Loan to secure some funds you require.
3. Friends and family
Many business owners start their businesses using funds from friends and family. You can ask your friends and family to invest in your business by making an equity investment, in effect selling them part of your business. You can also ask your friends and family for a business loan.
There are two major problems with using funds from friends and family to start your business. The first problem is the fact that if your business fails, your relationships will be affected. Note that people are usually very touchy when it comes to the possibility of losing their hard-earned money. If you are considering using funds from family and friends to finance your business, ask yourself whether or not you are willing to risk your relationship for the sake of your business.
The second problem with using funds from friends and family to start a business is the fact that you will most likely get a business partner even if you do not like to have a business partner. When a person invests in your business, you will realize that even so-called “silent partners” may become very opinionated and talkative. You can be sure that a friend or family member who invests in your business will want to be part of all business decisions. This could end up affecting your relationship with the friend or family member particularly if you decide to ignore their advice.
Our take on this: If you are careful, asking friends and family members to invest in your business is a good way to finance your business. Ensure that the agreement is in writing and look for a lawyer to draft the agreement on your behalf. You should also consider spending a lot of time educating your investors about the risks of your business. Last but not least, remind your investors to only invest money that they can afford to lose.
4. SBA microloan program
The SBA has a very useful but less known microloan program. They offer business loans for up to 50,000 dollars to small businesses. They do not offer loans directly, rather they fund the loans using intermediaries. Most of these intermediaries also offer management assistance and may require training as a condition for a loan. The major benefit of this program is that their assistance and training usually increases the chances of success.
Our take on this: SBA Microloan program is a good program meant to help aspiring business owners who need money to start and operate their businesses. The technical assistance offered makes it a good alternative for small business owners.
