Startups are the backbone of the US economy. When startups decline, economic growth hits a slump. Small companies are great drivers of innovation and they create jobs for local communities. They are also more productive than larger companies because they adopt new approaches and force big businesses to innovate or be left behind – think Uber and Airbnb. But starting a business is not always easy. Finance can be hard to come by, but it is possible, so if you have an entrepreneurial dream, here are the best ways to finance your startup.
The easiest – and safest – source of startup capital is a savings account. This is your money, so you won’t pay interest on it and nobody will be hassling you for a repayment. However, decimating your savings account is not always a good idea, so make sure you leave some spare cash in reserve, just in case.
Friends and Family Loan
Is your idea amazing? If you are convinced that your idea is guaranteed to be successful, have courage in your convictions and approach family and friends to invest in the business. Only ask those who can afford to invest their spare cash. After all, if the business fails, do you really want to be responsible for Aunt Enid losing her family home?
Make sure you agree on terms and conditions for the loan, for example, any interest payable and whether the person gets a share of the business in return for their investment. Have a loan agreement drawn up by an attorney.
If you don’t need much money to set up your business, you could get away with using a credit card or two. Be aware, however, that credit cards are an expensive way to borrow money, so make sure you can afford the repayments.
Re-Mortgage Your Home
Do you have equity in your home? If so, tap into some of that equity by using your home as a line of credit. Re-mortgaging releases equity, which can be used for anything, including financing a business startup. This is a relatively cheap way to finance a business, but it can be risky – if the business fails and you can’t make the debt repayments, the lender might foreclose on your home and leave you homeless.
Businesses loans are a traditional way of financing a startup. Have a chat with your bank manager and see what terms they are offering. You will be expected to produce a business plan first, so make sure you know exactly how much money you need and be prepared to justify every last dollar. You can also find unsecured business loans from Lending Express and other online lenders.
Crowdfunding is a modern way to raise money for a business. With crowdfunding, you ask the public to invest in the business in return for products or a share of the business. Your pitch will need to be compelling to attract support, but great ideas often do very well on crowdfunding sites.
Your final option is to find an experienced investor looking to help a startup. They hand over money and act as a mentor in return or a share of the profits or business.
It is also worth checking to see if your startup qualifies grant funding from the government or a charitable foundation.