Starting your own business can be extremely rewarding, but it can also be very demanding, both physically and emotionally. The responsibilities that come with being an employer are unlike anything you’ve ever experienced, and that’s why it’s quite an enriching experience that will help you grow and become a better person. Still, you need to learn how to adapt and deal with those responsibilities and challenges, or else you could burn out. One of the biggest roadblocks you’ll encounter along the way is finding funds for your company. But there are ways through which you can find the right financing source for your business.
Finding investors has got to be one of your first options as a business owner. You will have to give up some of your equity to attract a partner and encourage them to invest in your venture. But in exchange for the funding you’ll get, it’s definitely worth it. There are now more ways than ever to attract investors. Whether it’s a venture capital or an accelerator, if you get your affairs in order, you’ll find that there are a lot of people willing to invest in a company that has a high potential for growth.
Crowdfunding is one of the latest trends in the investment world, and it’s proven to be quite the powerful resource that has helped many companies come to life when they had zero capital. Sure, you can’t start a conglomerate through a crowdfunding campaign, but a small creative project that has the potential to grow can definitely find what it’s looking for with websites like Kickstarter.com. You just set a target amount of money you need to collect in a specific number of days, and after that, anyone can log into your account and pledge whatever money they can to get your project going. A lot of people have used this approach to raise initial funds to start a smaller project, and in return, they promise pledgers incentives like signing memorabilia, ticket shows for bands, and so on.
The word loan itself scares people off, and it’s mostly because nobody likes the notion of paying interest rates over money they borrowed. Unfortunately, that’s how it goes, and you sometimes won’t be presented with any other option to finance your business other than personal loans. There are two directions through which you can take a personal loan, and each scenario has different requirements.
The first option is if you have good credit, and in that case you can go for a traditional bank loan. A long-term loan from a bank will see you paying smaller installments per month, which is always a good thing –- though you most likely will be paying a lot of interest over the duration of that loan. So, do the math and find out if that’s something you want to do, because you might just opt for a short-term one to avoid paying that much interest. It goes without saying that you’ll need to pay these installments on time, or else you might damage your credit score.
The other scenario is where it gets tricky, and that is when you have a bad credit score. It happens to a lot of people, and it doesn’t mean you’re a bad person, but you need to find a way around it. Fortunately, it is still possible to get a loan with bad credit, but you’ll have to start comparing different lenders to find the right deal for you because there is a catch. Since you have a bad credit score, lenders will charge you higher interest rates than your average bank, because you’re basically a risk to them, so they have to make it worth their time and money. This is why you need to do some extensive research until you find a lender who’ll offer you the loan you need with a decent interest rate.
Friends and family
It’s only logical that friends and family would come up as possible sources of financing. They probably won’t charge you any interest for a loan, but that doesn’t mean you can approach them unprepared. Asking for money is never easy, and doing it with friends and family, puts even a lot more at stake. So, only approach them if you have a solid business plan which will explain to them everything they need to know. What are the risks involved? When do you expect to be able to pay back the loan? Are you offering equity for the money, or is it just a loan? These are questions that you should expect to get asked, and they are reasonable ones. This is why it’s important to be prepared so you could address all their concerns.
While this is a slippery slope, you can definitely establish a line of credit that would help you finance your business until it can stand on its own. You naturally need a good credit history for this approach, and you need to be really smart about this. You can’t just keep getting new credit cards without paying the old ones, because that could ruin your credit history and get you in a lot of trouble.
Banks aren’t the only entity that gives out loans, and in fact, they don’t even bother to give out a microloan, which is usually under $40,000. You can find other lenders willing to give those out, and there are quite a few of them. The great thing is microlenders don’t really care about your credit history and all that, so they’re much more flexible than banks –– though they do impose a slightly higher interest rate.
Trying to find financing to get your business up and running, or even expand, can be quite challenging. Still, there are different options out there through which you can do just that, but you have to carefully consider each one because there are pros and cons with every one of them. At the end of the day, just remember the importance of paying back your loan on time, because that way you ensure you can get another if you need it in the future.