How to Finance Your Own Business

Financing for a new business isn’t always easy to get. It can be a big challenge to business owners who just want to be able to show that their ideas are going to be successful. Without funding or the right financial controls, some businesses will find it hard to get off the ground, let alone succeed and grow. Therefore, it is important to have some idea of how you are going to ensure that your business has the money it needs before you launch. Here are some ways that you can build a steady income stream or raise the funding required.

Factoring

Factoring is the process of invoicing your clients and then ‘selling’ that invoice to an external factoring company at a discounted rate. Your company will receive money immediately (although it will be less than you initially invoiced) and the factoring company will be the one that does the chasing for the money owed. If you are having trouble with your cashflow, factoring can help hugely. It can be an expensive way to go about things, however, do ensure that your invoicing covers the additional cost of selling the invoices on to another company. It can also make customers feel uncomfortable and may not do very much good for your image, so beware if this is the route you want to take.

Bank Loan

A bank loan is something that business owners can apply for to gain the capital in order to start their business or to boost their business when it is already established. It is a popular option and can work in your favor if you are able to secure a good deal with a low-interest rate. Not all banks are willing to lend, however, and there will be strict criteria that you will need to pass before you are offered any money. If you are able to get a loan from a bank, however, you will know exactly how much you are paying back each month, and for how long. This can help immensely when it comes to budgeting.

Credit Cards

Using a credit card to fund your business isn’t ideal; it is much better to get a loan with an end date and a lower interest rate. However, a credit card can be perfect for business expenses as you go along. Used responsibly, credit card spending can help you to purchase equipment and tools necessary to grow your business. It’s best not to pay just the minimum each month, even if that is tempting. If you do that, you might find that you pay far more than you needed to due to fees and interest.

Your 401(k)

If you want to finance a business and you are able to tap into your 401(k) in order to gain funds to do it, this can be a wise step to take. Bear in mind that doing this requires specialized legal assistance so you will need to hire someone to help you through the complexities of releasing your funds.

If you truly believe – and have a business plan and evidence to back up your beliefs – that you can replace that money and then some with a successful business then it certainly makes sense to try this option. If you are at all unsure or feel uncomfortable doing this, then step back and rethink. This is your retirement income, and if things don’t go well, then you won’t get it back. Be realistic, and you’ll make the right choice.

Hard Money Lending

Hard money loans are only used for small business financing because they are asset-backed. This means that if you want to obtain a hard money loan, you will need to use your business’s commercial real estate as collateral. If you were unable to pay the loan, then the lender would be able to recoup their money from the equity in your property or properties. Hard money lenders in CT can be vital for a small business as they make these loans easy to apply for, easy to qualify for, and you will receive your money quickly.

Crowdfunding

Crowdfunding can be an excellent way to build funds for your startup, or even the next stage of your already established business. Find a crowdfunding site that will give you the most exposure (there are sites that are specific to the arts such as Indiegogo, and for small businesses such as CrowdCube, for example) and create a campaign. It should have as much detail as possible, including who you are and what your background is, what the business is designed to do, who your target market is, your projected earnings, and, if you have already launched, what your revenue looks like. You can start by sharing your campaign through emails, newsletters, and on social media. With enough of a buzz, you could bring in what you need (or possibly more) to begin the next stage of your journey.

Angel Investor

An angel investor is a third-party investor who will put money into your company for a percentage of its shares. You will need to pitch your company and your reasons for both needing the money and for wanting the amount you are asking for. Every penny will need to be accounted for.

It can be hard to persuade an investor to part with their money, but having an experienced manager behind you will help to allay their fears. This doesn’t necessarily have to be an employee; it could be an unpaid advisor with experience instead. You should also be prepared to show how passionate you are when it comes to your business. You’ll need to convince the investor that you are doing this because you believe in it and in your ability and not because it’s the newest fad that you think will make you money.

If the investor isn’t interested during your first pitch, keep in touch with them. When you have more backing, more experience, and more knowledge you can always try again and this time they may well want to invest.