A genius business idea with the right execution can completely transform your life. But it’s not all that simple. Building a business from scratch requires hard work, determination and well, like most things in life, money. In this post, we’re summarising some popular sources of finance for kickstarting a business.
- Employ Personal Savings
Using your personal savings is one of the most convenient and conservative sources. You don’t have to be approved by a lender and it doesn’t dilute your control over your business operations.
However, on the flip side, there’s only a limited amount at your disposal. If you’re willing to take a risk, you could take out a home equity line of credit on your house. But in case your business fails to take off, you can lose everything.
- Get a Conventional Loan
Another popular source of financing is taking out a conventional loan in the form of a business loan. You will receive a loan amount in exchange for regular interest and instalment payments.
While this is a common source, it’s not easy to get a loan from banks. Banks are reluctant to lend to new businesses, especially if your business lacks promise.
- Consider a Modern Loan
When getting a loan from a traditional bank is difficult, you can consider taking the modern route. You can use your credit card or apply for a payday loan to initially finance your business.
The approval process is quite lenient and funds are available almost immediately. However, this is a form of short-term borrowing with strict repayment policy. Failure to repay on time can adversely impact your credit score and make it difficult to borrow in the future. Finance27 offers quick and easy payday loans.
- Ask Family and Friends
If you have faith in your business idea, then put your pride aside and think about asking your family and friends for financial assistance. You can ask them for a business loan or an equity investment.
However, borrowing from family and friends is tricky. Such a loan can strain your personal relationships. Furthermore, borrowing from them will mean relinquishing control, whether you want or not. When people lend money, they expect to be involved in decision making. So, keep that in mind before proceeding.
- Attract an Angel Investor
Angel investors are individuals or small groups who invest in a business in exchange for business equity. In addition to financing, an angel investor brings expertise to the table. Considering you’re a new business, their expertise could mean the world for your growing business.
That being said, it’s not easy to attract an angel investor without a compelling business plan and credible future growth potential. Also, you need to be cautious when it comes to equity. You don’t want to end up with diminished control.
- Venture Capital
Venture capital is a form of private equity offered to emerging businesses with high growth potential. It is quite similar to angel investment, the only difference being venture capitalists don’t use their own money for investing. Again, it’s extremely difficult to secure this source of financing.
- Try Crowdfunding
Crowdfunding involves asking family, friends, acquaintances and strangers to pledge their money for your business. In exchange for pledging, you can offer some sort of incentive. You can sign up on a crowdfunding site and get started. While this is a relatively easy and cheap source, it lacks certainty. There is no guarantee that your crowdfunding campaign will gain any traction.
- Apply for Grants
Many government organisations and major corporations offer business grants to promising business ventures. Receiving a grant is perhaps the cheapest source of financing. You don’t have to repay or relinquish control.
At the same time, there’s no surety that you will get a grant, especially when there are numerous other business competing.
We hope you found this post helpful! This isn’t an exhaustive list, there are many other sources of finances you can procure.
