The process of starting a new business can be exhilarating. But there are mundane requirements that you will have to fulfill before you can venture into the world of business. One such important facet is getting the requisite funding to get your startup off the ground.
There are a lot of financing options available today, but not all of them will fit into your overall goal or plan. It is imperative that you understand your business needs first.
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Before making the big decision
You need to ask yourself fundamental questions. How much money do you require to start? Do you have any assets already? How much of your own money can you invest? Answering these important questions and more will ensure that you make the right choice when the moment comes. Let’s explore some of the financial options at your disposal.Five financing options
1. Commercial loans
Commercial loans are usually the first choice that comes to the minds of most borrowers. Bank loans have their upsides and downsides, but banking regulations have made this a safer option for most people. We can categorize commercial loans into long-term loans, which cater for large expenses such as acquiring fixed assets, and short-term loans that you can use for day-to-day expenses. However, most banks are wary of financing small businesses, and commercial loans may not be a practical option.
2. Equity investment
If debt is not your cup of tea, you should consider equity financing as an option for financing your business. The option allows your business to get funding from an investor, but there’s a catch: You have to relinquish part of your ownership to the investor. Investors usually bring their business acumen and experience to the table. How much you are willing to give and at what price should be the deciding factor.
3. Self-financing
There are benefits to using your savings to fund your business. Granted, you might not be able to finance your startup 100% using your own money, but you should endeavor to fund 25 to 50% of it from your pocket. It will not only guarantee your equity in the business but will also show potential investors that you are willing to take the risk and are committed to the cause.
4. Crowdfunding
Crowdfunding has increasingly become popular in recent years. This option may not have seemed realistic a couple of years back, but it has become a viable financing option for many businesses today. The advantage with crowdfunding is that you don’t need to give up equity or pay back the money. However, most people struggle in gaining traction. This option may only work if your products and services appeal to millennials.
5. Friends and family
Think about it. The people who will most likely buy into your vision and support it are those closest to you. There is a significant downside to taking this route, of course. You run the risk of ruining personal relationships that you hold dear. To avoid unnecessary fights and disagreements, ensure that you have a structured agreement beforehand.How to ensure you secure that loan
Lenders care about their money, and they are not just going to lend it to anyone who comes knocking. If you are serious about financing your business venture, you need to position yourself as a creditworthy borrower. There are four crucial things that lenders look for when evaluating a loan application.- Cash flow
It will be measured using your cash flow forecast in the business plan.
- Collateral
- Commitment
- Character
The first step you should take in your business is to have a solid business plan. It will make it easier for the lender to trust you. Choosing the right financial option will have a long-lasting impact on the success of your business. You should do thorough research and deliberate over the issue before arriving at a decision.
By  Robert Cordray | Embed |
Bio Rob is a writer from Albany, New York. He specializes in business, adventure, and self-help articles. | |
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