Most people have a great business idea inside them that they would love to put into action, but money is often the biggest obstacle preventing them. There are a number of ways you can fund a business, from borrowing money to putting up your own cash, or even a combination of ways to get that initial sum to start your business. However, each route has its own advantages and disadvantages. Here are some of the funding options available to start a new business, so you can consider which one is right for you.
Business grants
If you are starting a small business, there are a number of small business grants available for start-ups, which can help give you seed money to get your idea up and running. From big corporations to chambers of commerce, many different organizations offer these grants, which are often aimed at specific industries or groups.
The main advantage of grants is that you don’t have to pay them back, so if your business idea, unfortunately, doesn’t work out, you aren’t left with significant debt. However, there are a few disadvantages to this kind of funding:
- Competition is fierce, so expect to be up against a few hundred other businesses.
- You will need to invest a lot of time and effort into the application.
- Grants are usually given to existing businesses; newer enterprises may find it harder to win.
- You need a unique angle to win. These grants are free PR to the prize givers, so if you are starting a run-of-the-mill business like a salon or clothing retailer, you may not be interesting enough to win.
There’s certainly no harm in applying for a grant, but it’s worth keeping in mind that it’s likely to boost your company’s finances, rather than give you start-up capital.
Business loans
New businesses are often started using funding from a business loan, such as the products offered at biz2credit. Business loans are a lot different from personal loans; you will need to put together an application with a business plan and work out how much you’ll need to get your business off the ground.
Your business plan will include details such as:
- What your business will do
- Financial projections
- How you’ll pay the loan back
- How you’ll market and sell your product
- What sets you apart from the competition
Therefore, the process of applying for a business loan means you need to invest time into your application and put a proper plan in place.
It can be difficult for new businesses to get a loan, as it may take some time to get your cashflow going. You need to be able to prove that you can afford the repayments, whether you pay it from your own cash or another source. The good news is, once you’ve been in business for around a year, it gets easier to find financing, and you have many more options.
Self-financing
You don’t necessarily need to be rich to finance your own start-up, as there are often options such as using your savings or house equity to investing an inheritance. However, this is one of the riskier options, and many experts caution against self-funding a start-up in this way.
Some businesses can be started on a shoestring, even as a side hustle, and can be grown from there. That means that, even if you don’t have a huge lump sum, you can get a barebones business off the ground, then reinvest profits into the enterprise as you go along. If you don’t have much in savings, this might be a good option for you, and it means that once your business is able to support a full-time member of staff, you can consider quitting your day job.
Funding from family or friends
If you don’t have your own money to invest and are lucky enough to have generous loved ones, then you may be able to persuade them to invest in your idea. This can have its advantages. Even if you don’t have business experience or can’t get a standard business loan, then this may still be an option. However, you should look at the legal implications of borrowing this way and get an agreement drawn up to keep things professional.
It’s also worth considering what’ll happen if your business fails. Will they be OK about not being paid back? Will Thanksgiving forever be awkward? Consider whether it’s worth losing this relationship if things do turn sour.
When you start your own business, there are many options for funding, each of which has its own advantages and drawbacks. Be sure to take the time to consider which one is right for you before you sign up.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.
