Businesses in this century exist in a new economic landscape that demands out-of-the-box thinking especially when it comes to getting funds. Contrary to popular myth, nobody is waiting to give you money just because you have a good business idea. There is just no free money. However, that doesn’t mean there are no viable funding options. Whether you are looking for the initial seed capital and money to grow your existing startup, how well you can sell your idea to potential financial partners, your business model, and your projections can help you to get enough funds. Here are creative funding options to try.
Fund Your Business Yourself
The cost to start a business is at an all-time low these days, and you can consider self-funding so as to avoid incurring huge interests on loans. More than 90 percent of entrepreneurs use this financing method because of its benefits. While it might take you a little longer to save some money for this purpose, you will not have to give up any control or equity. Your business belongs to you alone.
Family and Friends
If you do not have your own savings or do, but you need additional capital, your family and friends can be of help to you. One way of getting them on board to support you financially is inviting them to invest in the company with an understanding that they will get back their money only on condition the business makes profits that can take care of that. Since these friends and family members are investing in you, and not your business, both of you should consider the investment as a grant with no strings attached. If this arrangement cannot work, you can also consider asking them to give you a refundable loan.
Crowdfunding is a great option for those who do not qualify for a bank loan. This method allows for a wider pool of investors with fewer restrictions, and, for this reason, it is an ideal option in the early stages of a startup. It can also be of help to you if you do not have friends or family members that are willing or able to contribute.
Many crowdfunding sites have already started offering this service, and so you do not need to wait any longer to start asking for funding for your business. Use existing online resources for crowdfunding and also keep your eyes open for funding opportunities over the next several months.
Factoring is a business funding method that involves a company selling its receivables at a discount so as to get cash up-front. If your company has poor credit, this option is for you. However, other businesses like apparel manufacturers, which always fill orders long before they receive the payment, also can depend on this method for funding.
However, you should turn to this method as a matter of last resort. It is expensive. Companies that sell their receivables are required to pay a fee that is a substantial percentage of the total amount. You may be required, for example, to pay a two-percent fee to be able to get money 30 days in advance, which is equivalent to an annual interest rate of approximately 24 percent.
Business credit cards offer an excellent source of funding that you can use to cover the costs of equipment and materials. It will give you that extra thirty days to pay these needs as you wait for the money to come and cover it. If you are keen on reaping the benefits from this financing method, use your business credit cards prudently. Compare the cards on costs, credit limit, perks, rewards, fees, and annual percentage rate.
Banks finance all types of businesses. However, they want to see a healthy bottom line that indicates that there is almost no risk to giving you a loan before coming in. Bank loans also have very stringent requirements such as putting up collateral that they can take to pay the loan should you default.
You can see that all these funding options require a lot of hard work and commitment on your part. The economic downturn also makes it prudent to look to cheaper financing methods. With all these options, however, there is no excuse for not living your dream.