Starting a business is a risk, but it brings with it great rewards. The first step towards starting a business is the hardest, because it requires a decent amount of money, which tends to be in short supply, especially if this is your first business. Fortunately, there are several possible sources of funding for starting a business. Below are the three categories into which most outside funding sources tend to fall.
Informal Loans
A significant number of businesses get their start through informal loans. Whether the money comes from a friend or a family member, this type of loan has a few stellar characteristics. First and foremost, it rarely requires paperwork – you need the money, and someone about whom you care lends it. The terms of repayment are also highly negotiable and can give business owners a bit of breathing room as they get started. Unfortunately, this type of loan also puts someone about whom you care on the line for the success or failure of your business.
Having access to this type of support can be useful, but it’s not always the best way to move forward with business. Those who would seek to keep their business and personal lives separate can have difficulty separating the two when they take this kind of loan. Only borrow from those who understand that starting a business involves a great deal of financial risk. And while it doesn’t require paperwork, it may be a good idea to use it anyway. You don’t want to end up with a situation where you are at odds with a loved one over the money they loaned you. It may be a bit of extra work, but it is simply there to protect both of you.
Business Financing
Most businesses get their start with small business loans. These loans can come from a variety of sources, but most typically come from banks. These are the loans for which you need to build a business plan and for which you often need collateral, but they are also among the most useful you can find at the beginning of your business career. These loans tend to come with very reasonable rates and a repayment schedule that most can afford, but the most attractive part tends to be that they help businesses establish relationships with financial institutions. There are different types of loans available, depending on your needs and the type of business you are building.
These loans are not always easy to get, though, especially if you have no business experience. Banks tend to want to loan to people who have at least a roadmap to success, so you will need to build a good business plan before you ask for any money. If you are prepared and have reasonable credit, though, business financing may be the right choice for you.
Investors
Getting private investors to help you start a small business can be done, but it’s often tricky. There are many private investors out there who are always on the lookout for a good payday, and they’ll help new business owners who look like they have a chance of success. These investors are easier to find than ever thanks to the Internet, but finding a good investor still takes a great deal of legwork.
The downside to working with private investors is that they get a percentage of your company in return for the startup money. This can be useful if they’re bringing something other than just money to the table, but you’ll be under constant pressure to pay back these individuals if you want to go it alone. A good investor can be an angel to those in need, but that doesn’t mean that every investor is right for every business.
There are multiple ways to get funding for to start up your business. Each type has its pros and cons, but the ultimate result of each is the same. If you need funding for your business, you’ll always have to sell someone else on your dream. If you can make that first sale, there’s a good chance you’ll be able to convince consumers to make those that need to follow.
