Business Funding Options for Your Small Business
It’s one thing to have a great idea. It’s quite another to make that idea a reality as a business. That said, you can make your dream happen, but you will need the right funding for it to work. Luckily, there are many options out there to help, but as a budding entrepreneur, you need to make the right choice for your company.
If you want to be successful at securing funding for your small business, there are some steps you will need to take before you start applying. The most important is to have a detailed business plan that outlines how you will spend the money you get. It should have an explanation of how you run your day-to-day operations and how you will market your products and services. Prospective funders want to see that your business is viable and that you have a sense of what you are doing. When you have that in place, then you can start looking at the business funding options for your small business.
Self-Funding
Funding everything yourself is possible for some people and some types of businesses. The benefit of this is that you won’t have to share any of the profits with anyone else. The issue is that you will also be taking on all the risk. You don’t need to have a business plan to self-fund, but the fact is that if you don’t, you might find that you run out of money before your business is operating at a profit. Only take this chance if you have significant capital saved up that you can access for a long period of time.
Government Grants
There are several government grants that you can access if you are starting a new business. Federal, state, and municipal levels all have different programs, depending on where you live. If you can get a grant you won’t have to pay anything back, but there may be requirements attached to it, such as hiring a certain number of employees. Make sure that you adhere to any of these requirements otherwise you may face penalties down the road.
Small Business Loans
There are many lenders out there who are looking to invest in promising startups. With a good business plan, you can convince lenders to provide you with the funding you need to build your business to be self-sustaining. You will have to pay interest on the loan, but you can negotiate a payment agreement that works for you and keeps you flexible. Small business loans are a great way to make sure that you have everything you need to build your business to success.
Investors
An angel investor is someone who invests in businesses with the hopes that they will get a profitable return. While this will help you get the funds you need, you will also have to share your profits with any investors that you have. They will be harder to convince than a bank or government program. You will have to have your sales hat on to sell your concept as well as yourself to show that the business can be a success. Investors won’t take a risk unless they’ve done their due diligence.
Crowdfunding
Crowdfunding has become more popular in recent years as our society gets more connected through social media and the internet. The concept is that a startup can canvas for funds through their networks and friends, and interested people can “donate” to help get the business off the ground. Instead of getting a cut of the profits, a business will often reward supporters with special gifts and incentives, including sneak peeks and special editions of products. This helps build a community around a business and automatically reels in engaged and interested parties.
Business Lines of Credit
A business line of credit functions like a cross between a loan and a credit card. Instead of getting a lump sum, a business can have access to a certain amount of funds up to an approved limit. This is a good option when you aren’t sure about the exact amount you will need and don’t want to have to pay interest for funds that haven’t been used. A line of credit can usually be used up to the limit, and then funds can become available again as you pay them off.
Factoring
If your business is going to use invoicing to get payment from customers, then factoring might be a useful tool until you build up your bank account. If you invoice a client you will have to give them a grace period to pay. That is usually somewhere between 20 and 30 days. There’s also no guarantee that they will pay during that period. In the meantime, you still have bills to pay and other expenses. Factoring involves a lender giving you money upfront for invoices so that you have the cash flow you need. The factoring service will then pursue payment from the client. You have to pay a small fee for each transaction but otherwise will have money immediately without having to wait for payment.
How much funding you need will depend on the type of business you are starting. However, all of these options could be appropriate to keep the lights on and pay the bills until you are self-sustaining.
This article has been published in accordance with Socialnomics’ disclosure policy.
