To say that starting a business is hard is an understatement. From writing a business plan to finding potential business partners, there’s a lot that must be done in order to create a solid foundation for your business to grow. One of the most important yet most challenging things all entrepreneurs face is securing funding for their business.
It takes money to buy inventory and equipment. Cash flow is also needed for marketing your brand, buying a storefront, and of course paying employees.
Are you unsure of how to secure money to get started on your business? Here are 5 different ways to fund your business plans.
1. Get a Business Loan
Just as there are loans for personal, auto, and mortgage purposes, lenders also offer business loans for entrepreneurs who need money to get there business up and running. Before starting a business loan application, it’s important to figure out if you want to borrow from a large institution, a small bank, or even a community-based organization. The age and success of your company will determine which option is best.
Typically large banks don’t lend to new or small companies because of the high risk. As an upcoming company, your best options are to borrow from a small bank, a community-organization, or even a government agency like the Small Business Association.
While you’ll need to choose a lender, you’ll also need to select the right loan type for your company. There are many different types of business loans including:
- Small business loan
- Line of credit
- Invoice financing
Be sure to thoroughly research and figure out which lender and loan option is best.
2. Credit Card
In the event that you’re unable to get approved for a loan, a business credit card is a great option for funding initial startup costs for your company. There are credit cards that are meant just for business purposes such as to buy inventory or equipment. The one thing you’ll want to avoid when using a credit card to fund your business is mixing personal and business purchases. Otherwise you face all sorts of confusion, especially come tax time.
Instead, apply for a business credit card. These cards often offer rewards programs, such as cash back on purchases or points, which makes using them much more beneficial.
Another benefit is that you can take out a cash advance on most credit cards. What is a cash advance on a credit card? In simplest terms, you take out cash on the card, like a debit card, versus using it as credit. This can come in handy when you need access to cash quickly.
Before applying for a business credit card, be sure that both your personal and business credit ratings are in good standing. Look at your credit report and confirm that everything listed is correct.
In the age of social media, crowdfunding has become a very popular option for startup business owners who are looking for cash flow to fund business plans. Using a crowdfunding website like Fundly or Indiegogo, you can not only get public funds for your business, you’re also able to network and advertise your brand at the same time. By pitching your company and product to the public, hundreds if not thousands of people are exposed to the product or service you offer while also learning about the mission and values of your company.
4. Alternative Lending
There are many alternative lenders that offer loans and lines of credit. Alternative lenders are especially beneficial for small and upcoming businesses that aren’t able to qualify for traditional lending options. Some of the most well-known alternative lending sources include OnDeck, Kabbage, PayPal, and Prosper.
With these companies, you can typically apply for funding online and receive a decision immediately or in just a few days. This is much more convenient than the process of applying through a traditional lender, a process that can sometimes take weeks if not months to be completed.
5. Seek an Angel Investor
There are plenty of investors out there who are willing to fund your business startup costs. In return, they’ll receive a percentage of your business income over time. In order to pitch your business idea to an angel investor, you’ll need to have a solid business plan, have clear direction, and have an exit plan in the event that your business doesn’t work as expected.
To win over an angel investor, be sure you have some experience on your team. Investors want to know that you have someone on your side that’s been through tough economics. This adds to your business’ credibility. It’s also important to avoid falling fads. Prove that you’re truly passionate about the idea that you’re pitching versus cashing out on the latest trend.
Securing funding for your upcoming company won’t be easy, but it’s not impossible. Keep these 5 options in mind if you’re ready to put your business plans into action and to watch your company grow.
Do you have any experience funding a small business or startup? What helpful advice can you give to young entrepreneurs who are looking for ways to finance a dream? Leave us a comment with your expertise in the section below.