Startups

5 Ways to Finance A New Small Business

startup funding

Every startup needs to have capital, whether for initial rollout efforts, funding product development, acquiring inventory, or paying the first employees. Most entrepreneurs think that bank loans are the primary source of getting a fund, only to realize that banks are the least contributor for startups.

Getting funded is so hard, that is why many entrepreneurs have unreasonable expectations on how to fund their businesses. Thus, they spend too much time and resources on methods that won’t really lead to the long-awaited success.

Aside from bank loans, here are some inspiring and doable ways for financing a new small business.

1. Loan from family or friends

It might be difficult to find money in starting a business, especially if the entrepreneur only has an idea with no customers, assets, or revenue to back it up. Family and friends can be a vital source of funding since they are the people who trust them the most, even before they can prove that their plan will work.

The commitments should always be placed in writing such as promissory notes, which turn to value at a rate determined by future investors.

2. Loan from angel investors

Angel investors are mostly professional entrepreneurs who are willing to help the future generations of business owners. These investors give money and in exchange, will ask for equity in the company.

Angel investors excel from other types of financing options because they are always on the track for the next idea or business to invest. Many big tech companies today, such as Yahoo and Google were funded by angel investors.

Every investor has a different priority. Some would rather invest in enterprises in the very beginning, while some choose to support beyond the startup phase. Many angel investors already have some revenue but still need funding to put their companies to the next level.

3. Online lending option

Online lenders have become a great option to traditional business loans. These programs have the advantage of speed because it only takes about an hour to complete, and the choice and accompanying funds can be issued just within a few days.

4. Try crowdfunding

There are plenty of great crowdfunding sites that has become very famous with entrepreneurs, investors, and the general public in the past two years. Web sites such as Indiegogo and Kickstarter are just examples that are popular for entrepreneurs to pitch their ideas and raise money.

Each has its good and bad side, that is why it is best to investigate the details related to the sites fully. It is necessary so as to avoid any disputes such as collecting business funds in the future.

5. Personal financing

Starting a new business is risky. In most cases, this level of risk prevents traditional lenders from providing loans to business owners. It is tough if the entrepreneur hasn’t invested any of his or her cash. And it is complicated to get a third party to provide money for the business if the business owner hasn’t shelled out his or her own money.

If entrepreneurs have savings or have a house that they own, and are willing to refinance, then these are the options which they should explore if they’re comfortable with the possible consequences, whether good or bad.

Takeaway

The business might face many challenges, especially if it’s just starting up, but none are as significant as finding cash to get everything off the ground. From renting or buying a production place to purchasing goods and hiring staff, everything that needs to be done just to turn the idea into a practical business requires money. Fortunately, the ones mentioned above are some ways to finance new ventures.

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