How to Finance a Small Business
Financing a business, whether big or small, can be challenging but there are many options available to help people looking to start a business. Starting a business and getting financing takes a lot of hard work and planning. A strong business plan is often necessary to secure funding for your idea. From traditional business loans, to angel investors, and factoring, people can find the money they need to finance a business.
Crowdfunding is a fairly new way to raise money. There are several crowdfunding sites that have proven to be an effective way to raise money. To crowdfund, you set a goal of how much money you want to earn over a set period of time. People can then pledge money to help you meet your goal. People raising funds often offer an incentive for donating such as a free product once the business is up and running.
An angel investor is someone who provides financial backing for entrepreneurs and small startup businesses. To get funding from an angel investor, you will need to know your business inside and out and have a solid business plan. It is also important to be truly passionate about your business. When presenting your business to an angel investor you should avoid jargon, and be succinct.
Factoring can be a cost-prohibitive way to raise funds for a business and is often used by those with poor credit. Factoring involves a company selling their receivables at a discount to get up-front cash. Companies that use factoring generally pay a fee that is a percent of the total amount for selling receivables. Business should consider all the finance options available to them before selecting factoring.
Traditional Bank Loans
With the economy, it is more difficult to get a bank loan than it has been in the past. Lending standards are much stricter but many banks have extra funds set aside for small business lending. Obtaining a traditional bank loan will require you to have a good credit score.
Small Business Administration Loan
The US Small Business Administration (SBA) offers loans that are open to any small business though there are qualifications. SBA loans are only given to businesses who are unable to obtain the money they need through other means. Your business will also need to meet the definition of a small business for your particular industry. Businesses may also need to meet other criteria depending on the type of loan being applied for.
Family and Friends
A common way to finance a small business is to ask for help from family and friends. It is important to have a formal business plan in place before you start asking for money. It is also important to keep in mind that borrowing money from friends and family can turn them into creditors and affect personal relationships.
If you are fortunate to earn enough money, it is possible to simply save enough to start your own business. If this is not an option, you can pledge a percentage of your future earnings to get funding. This is done through an online marketplace but it is important to keep in mind that the legality of these types of contracts have not yet been established.
If you have enough money in your 401k, you may be able to access it to start your own business. There are tax code provisions that allow people to tap into their 401k to get the funds necessary to start a business. While the steps for getting money from your 401k are fairly simple, they are legally complex so you will need the help of someone with experience.
There are many different ways to fund a business and with enough determination and hard work, it is possible to fund your small business. To learn more about funding, visit the pages listed below.
- Explore Loans, Grants, and Funding
- Creative Financing Methods for Startups
- How to Finance Your Business
- Funding Your Small Business
- Grants and Small Business Financing
- Online Banks Fill Funding Needs for Small Business
- Alternative Financing Options
- Types and Sources of Financing for Startup Businesses
- 3 Ways to Fund Your Small Business Venture