There’s little more exciting than starting a new business of your own. There’s the huge rush of joy that comes with being your own boss, and knowing that you alone can set the path forward. But there are also a number of challenges and stresses involved as well.
Figuring out how to finance a business is one of them, and possibly the biggest stressor. Getting even the smallest of small businesses up and running can be quite expensive. There are a huge number of start-up costs that have to be accounted for.
If you’re like many Americans, you probably don’t have the money sitting in your bank account to cover these costs. That means you’ll have to look elsewhere to find the cash. But where can you look and what can you do?
Read on, and we’ll walk you through what you need to know about finding funds for a small business.
Knowing Your Start-Up Costs
There are many expenses that are unavoidable in getting a small business up and running. You’ll need to pay for everything you need in order to provide your product or service, of course. But you also might need to rent property, launch a website, apply for licensing, and drop a pretty penny on advertising to make sure people know you exist.
All combined, these costs may add up to a total that’s even larger than what you initially expected. Before you can even think about finding that money, you need to make sure you have a solid grasp on how much money you’ll need to raise.
Sit down and go over your budget and make sure you’ve accounted for every possible area of expense for your first few months of operation. Having a detailed budget and business plan will be essential in securing financing, no matter which method you end up going with.
Take Out A Business Loan
One of the first places you could look for financing is your local bank or financial institution. Banks frequently give out business loans to aspiring entrepreneurs. If you have a rock-solid credit score and collateral on hand, you might be able to have the bank lend you some money.
A business loan usually comes with a lower APR (that’s annual percentage rate) than other forms of money-lending. That means the interest on the money you owe the bank will be lower, and you’ll save money in the long run.
It’s harder to secure a loan from a bank these days than it used to be, with banks being more resistant to the risk involved with supporting small business owners. But if you have a stellar profile and great idea, this may be the way to go.
This is, of course, not free money. If you finance your business with money from the bank, it is money that you’ll have to slowly pay back as you build your business up and begin to turn a profit.
Secure A Few Angel Investors
An angel investor can be a literal savior for a small business. These are investors who come in and provide funding for small businesses and entrepreneurs. Not only do these individuals provide money, but they can also typically provide advice, mentorship, and helpful industry connections.
It can be hard to secure an angel investor for a small business. Often, these are people that know the world of business inside and out. You have to really impress them with your idea and business plan for them to be willing to hand their money over to you.
If you think you can take on that challenge, however, this can be one of the greatest ways to get your business financed. An angel investor hopes to make a profit on your company, which means the money they put in they don’t expect to get paid back.
On the flip side, it does mean that you’ll be sharing a percentage of the profits your business makes with this individual.
The Wide World of Crowdfunding
A new form of financing has become much more popular over the last decade? Crowdfunding.
You’re likely familiar with the concept of crowdfunding through websites like Kickstarter, GoFundMe, Seed & Spark, and many others. These websites allow entrepreneurs and artists to launch campaigns that outline their ideas and ask potential consumers to pitch in ahead of time to make things happen.
In most crowdfunding campaigns, one offers the general public certain incentives to help get people to donate. This could be a promised copy of your product once you’re up and running, discounts on purchases in the future, or even a sort of membership program.
Crowdfunding has many advantages, as donors on these websites do not expect to be paid their money back, nor do they expect a share of profits. There are many different crowdfunding websites out there, so it’s important to pick the one that feels right for your particular business idea.
These hosts also have different constraints and rules when it comes to your campaigns. It’s important to do your research before launching on any particular site.
How To Finance A Business
Knowing how to finance a business can make the difference between a struggling beginner and an experienced entrepreneur. The above options are just a few of the different ways that you can find financial support for your small business idea. With a little luck, you can be up and running in no time.
Need more advice on being your own boss? Check out our business page for more.