How to Finance a Business: 4 Funding Options
There are many small businesses that need capital to grow and funding can come from a range of sources. Before going in search of funds, it is important to have a solid business plan and a distinct outline of how the money will be used.
In addition, you will need to be able to state why your business provides a good risk and how the funds will be repaid. Investors will also want to know about the management of the company so they can be confident in the business plan and the individuals behind it. Below are 4 sources of funding you can think about:
- Bank Loans
Getting a line of credit or a loan from the bank can be more time-consuming in comparison to other methods of funding. When you apply to the bank, you will need to prove you have a history of repaying debt. The bank will require a financial forecast and business plan.
Reasonably, the bank needs to be sure they are going to be repaid. Several types of bank loans are available, including ones via the Small Business Administration. Collateral is required for some loans in case the debt is not repaid.
- Venture Capital
In exchange for funding, venture capitalists take equity in your company. These funds are similar to mutual funds since they pool money from several investors. Additionally, venture capitalists have business expertise in the companies in which they invest and will be actively involved in the operation of the business. To obtain possibly large sums of money, you will yield some control and equity.
Consider the amount of money you need and what you are prepared to give up to get funding. This will help you in deciding the best way to move forward with expanding your business.
- Crowdfunding Websites
Online-based crowdfunding websites have become increasingly popular in the last few years. They are usually used to assist businesses in raising money to launch a particular product. This method of funding can be highly time-consuming and requires information to be posted on the website, often with photos or a video of the product.
Crowdfunding could be an ideal way to pre-sell products and obtain the capital needed to build them; you may use up lots of the funds on incentives to get individuals to sign up. There are some crowdfunding websites that only let you access the funds if you meet to get to your fundraising goal. In addition, there are some websites that may take a percentage of the earnings as a fee.
- Credit Cards
Typically, credit cards are the easiest way to get money to fund your business; however, it should be noted that a high cost for the capital is attached. This is because interest rates on credit cards tend to be high. There is good news in that they are flexible and you do not have to make any justification regarding what the money is being spent on.
The amount that can be obtained is based on the credit limit you have, which is typically less than you would receive from a bank or other types of lenders. Credit cards provide a decent source of funds that can take care of small-scale revolving needs. They are also a good source for entrepreneurs who want to retain company ownership and control.
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