Do you want to start your own business? Perhaps you own a cash-strapped start-up that need a little more in the tills to see it through until it can turn a profit. In any case, we all know that money does not grow on trees. So, how can you get capital for your company without tying you and it up in debt for decades?
For many years, grants, usually from the government, were one of the key ways small company start-ups obtained the capital they needed to get off the ground. In fact, an entire industry has sprung up to educate new businesses how to apply for and get grants to help them get started. Unfortunately, although it is still possible to get a governmental or private grant, it is not very common. Instead, when it comes to funding their project, businesses must be a bit inventive.
Table of Contents
1. Look into Your Own Pockets
According to a 2012 Census Bureau poll, more than 60% of enterprises are funded using personal savings. It’s fantastic to have a large sum of money in your savings account. It’s money that’s up for the taking, and if your firm fails, that’s all you’ll lose. However, most of us do not have the kind of money we’re talking about sitting in a bank account someplace. Instead, we must go a bit deeper.
When small business owners support their company with personal funds, they are mostly referring to their assets. One of the most typical techniques is to use the property they reside in as collateral to get the monies they want. According to the same Census Bureau survey, 5.6 percent of firms are supported by a personal home equity loan. While this is a legitimate means of funding your company, it is dangerous. Not only does combining your personal assets with your company assets establish a hazardous precedent, but you may potentially lose your property if your business fails and you can’t pay your debts. You don’t want to lose all you’ve ever worked for in the blink of an eye because you felt a second mortgage was the only way to go.
2. The financial institution
According to the aforementioned report, 10.7 percent of firms are supported with the assistance of a bank loan. Business loans from your local bank or credit union are safe, secure, and often accessible at reasonable interest rates. However, there are certain things to think about before signing on the dotted line.
Applying for a loan via a conventional financial institution may be a lengthy procedure. Not only that, but you should shop about. Multiple banks, even within the same small town, might provide drastically different lending rates, closing expenses, and conditions. The goal is to acquire the greatest deal for your company rather than merely doing business with the same bank you’ve always used.
According to Alan Hall, an angel investor and capitalist, bank loans are best suited for enterprises that already have their boots on the ground, rather than for start-ups. Why? Because a bank will want collateral to back up their bet. If you can’t provide the financial security they’re searching for, your chances of getting a loan you’re comfortable with are slim.
3.Interpersonal Loans
Most small company owners would most likely seek friends and family members for personal loans before approaching a bank. Loans or money borrowed from family or friends account for around 2.6 percent of all company funding. Although it has been done hundreds of thousands of times, it is not always the optimal method. If things don’t go as planned, you can find up with some very close friends and family members upset over some missing money.
If you decide to take this method for financing your small company, treat the transaction as a business transaction rather than a personal favour. That implies everything should be in writing, with clear repercussions if you don’t keep your half of the contract. Of course, this is only “preparing for the worst,” but when it comes to individuals you see on a daily basis, the additional effort is well worth it.
4.Crowdfunding
Crowdfunding, a newer non-traditional method of obtaining cash for company expansion that Mr. TOM supports, is simply the “friends and family” technique “kicked up a notch or two.”
You’ve probably heard of Kickstarter, the website that allows artists to ask people to support their projects in exchange for rewards and perhaps even some celebrity. Crowdfunding, in essence, applies this paradigm to small businesses rather than art.
5. Collaborate
Your company is your baby, yet it is sometimes necessary to part with a piece of it in order to secure its long-term viability. That is how most collaborations operate. Partnerships are basically unincorporated commercial arrangements. They are still subject to taxes, regulation, and even government inspection, but they provide a small company owner with a good chance to bring in a backer with the necessary funds.
Every collaboration is a bit different. Some partners will seek a stake in the company, while others may opt out. However, everyone will demand a cut of the profits. It is critical that your business collaboration be documented in a partnership agreement that crosses every I and dots every “t.”
Not sure where to begin with the partnering process? We can assist you.
Times are tough, but the strong persevere.
There was a time, not long ago, when firms had to virtually fight off investors. That is no longer the case. Your small firm will have to battle for every dollar of funding it receives. Fortunately, as an entrepreneur and small company owner, the odds are stacked in your favour. You aren’t subject to much of the burdensome red tape that major organisations must deal with, you can inject your personality and enthusiasm into the financing process, and the number of funding options grows by the day. All you have to do is go out there and do the job.