Starting a new business requires a lot of planning at the backend. However, the owners mostly worry about the issue of financing it in the right manner. Money is an integral part of every business and it is impossible to launch your business without adequate funding. A large number of financial complexities have increased the guard of lenders making it more challenging for small business owners to secure the requisite finance.
To help streamline things we have assembled a list of some easy ways in which entrepreneurs can gather adequate financing for their small businesses.
7 Ways to Finance Your Small Business
Leverage Your Acquaintances
Your friends and family are undoubtedly the best and safest avenues of getting finances. Since you already possess a personal connection with them, you won’t require too much persuasion either.
Angel investors are people who are willing to invest in your business in exchange for some stakeholder percentage. The angel investors might also expect the payment of some cash injection alongside certain fees. Start-ups in extreme need of financing can get a breather in the form of angel investors though attracting them is easier said than done. They usually invest in your start-up if it holds the extreme potential of making a mark amongst countless competitors. Some of the special areas which the angel investors consider are your passion for the project, the experience of employees, and your level of dynamism in running the business. Angel investors wish to be notified about every small financial advancement of the business they are investing in. Thus, they would rarely invest in start-ups which keeps them in the dark about the proceedings.
Small businesses having high growth potential can suffice their cash requirements by seeking the help of venture capitalists. They are an external group offering capital and demanding part ownership in your business. If you anticipate massive growth in your business then you can seek the assistance of venture capitalists. This bunch of specialists also bring massive knowledge and a variety of industry connections that can help in your business endeavors. In stark contrast to traditional banks, venture capitalists have a soft corner for innovative companies carrying a high-risk quotient courtesy of the return they can offer.
Getting a loan from a bank or financial institution can be a convenient way of financing your small business. However, banks call for a spot-on financial record which is difficult for most start-ups to maintain. Unsteady records can cause your loan application to be labeled as a risky one and its rejection in the long run.
Business Credit Cards
Business owners seeking easy access to financing can opt for business credit cards that imitate the functioning of a normal card but are dedicated towards business expenses. They usually offer a higher spending limit, better intro perks, and a lower interest rate. Business owners need to have a good credit ranking to qualify for these cards.
Entrepreneurs can attract potential investors via crowdfunding which is a lucrative way of garnering adequate finance for your cause. Numerous web portals have cropped up over the last few years wherein entrepreneurs can talk about their business for impressing people and getting financing.
Business Line Of Credit
Companies having a strong credit score can avail some flexibility in their funding through a business line of credit. This is particularly helpful for seasonal businesses facing unpredictable capital requirements. Owners can access this fund only during times of extreme crisis. They are charged interest on the funds used. While it is difficult to qualify for a business line of credit, it can offer adequate help while buying inventory, paying off debts, and filling in seasonal cash flow gaps.
Statistics have revealed that 20% of small businesses fail because of capital woes. This is why it gets imperative to calculate your capital requirements before you start. Some important categories you need to take into account are business expenses (marketing costs, permits, salaries, etc.), business assets (equipment, inventory, machinery, etc.), and reserves.