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Funding a startup business is no walk in the park, but it’s all about knowing where to look. As you begin your small business journey, you’ll need to secure the right finances to ensure you’ve got the resources you need to get your entrepreneurial idea up and off the ground—and maintain its success down the road. Consider the following financing routes and determine which will best suit your needs.
As the most common way that entrepreneurs raise capital for a startup, bank financing tends to be generally simple to secure, so long as you have good credit and proof of collateral. Some banks may require you to receive a loan guarantee from the Small Business Association before they’ll approve your financing. Although recent years have seen banks tightening the reins on their loan processes, there’s still much financing to be had, especially if you work with a local, community bank.
Need financing for your idea, but also looking for some advice from someone who’s done it all before? Angel investors are the way to go. This refers to individuals that have made their fortune and are ready to invest their money back into new startup business. These individuals can provide important business connections and invaluable advice that could see you on your way to success in no time. This type of financing is all about leveraging your contacts and proving to successful individuals that your idea has merit. If this is of interest, check out Tech Coast Angels.
A Crowdfunding Campaign
While crowdfunding is still relatively new to most industries, it has become a popular way for entrepreneurs to raise money for their business startups. There are numerous websites that you can take advantage of, in which you propose your business idea and ask the public to donate personal funds to help you get toward your goal. One of the most popular options for this startup financing route is Kickstarter.com. Those who contribute to your new business idea generally receive some sort of reward, usually in the form of the product you’re creating, but the rules and regulations vary based on site and investor.
Hard Money Loans
If you have bad credit and can’t seem to secure a loan from traditional lenders, hard money lending might be the way to go. These loans come from private lenders, and generally carry substantial interest rates. These loans are generally secured by a real asset, usually in the form of property. If you have little collateral and capital to start your business, this can be a wise route. Just know that the longer it takes you to pay off your debt, the more interest you’ll pay, so consider the risks and advantages carefully before applying for a hard money loan.
Family and Friends
They say personal relationships and business should never mix, but many business owners have found success through family and friend-provided financing. If you have no previous business success and little to show investors, personal funds from loved ones can be a worthy route to consider, although it’s not without its risks. Be wary that the strain caused by business failure can ruin relationships, and as over half of all small business fail within their first five years, it’s definitely something to think long and hard about.
Future Financial Concerns
While securing the capital to begin your business comes first, there are a bevy of financial concerns you’ll need to prepare to face down the line. Finagling the world of business taxes tends to get a little hairy for first-time business owners, so it’s important to receive financial guidance from a personal advisor or tax company like Community Tax at least the first time around.
There are numerous ways to finance a small business, but some are better than others. Take a look at the various financing options and make the best