Common ways to fund business
Traditional loans —Traditional lenders, like banks, are cautious with their money. If your credit degree is below a certain degree, it would be difficult for you to borrow money. A more established business, approximately two years in operation or more, with good credit and minimum $100,000 a year in revenue, will have a much easier time finding a lender, and most likely a better interest rate.
Online lenders — If your credit score cannot satisfy the requirement and you don’t have much time in business, you might look at popular online lenders for a loan. According to a business report, 22% of business people choose to lend money online.
Personal loans — If you have a new business, but your personal credit score is high, you might consider taking out a personal loan for funding. However, if your business goes bankrupt in the future, it would affect your credit score a lot.
Microlenders — A microloan is a very small loan, typically of less than $50,000 given out by individuals rather than traditional lending institutions. Be on the lookout for these types of loans through government organizations, such as the SBA.
Small business grants — Many nonprofit organizations and government entities offer grants for entrepreneurs beginners. Some small business grants are open to any small business while others are targeted to specific demographics, like businesses owned by minorities, women or veterans. You can visit the website Grants.gov for more information.
Investors — Are you involved in your local entrepreneurial community? It can be a good place to find people willing to invest in your business and ideas. Make sure to research and perform due diligence for any investor opportunities. Don’t forget to develop a comprehensive term sheet.
Crowdfunding — Crowdfunding will require you to pitch your business idea online through popular sites such as Kickstarter or Indiegogo to get up-front pledges to fund the business or product. In order to receive funding, you need to understand your business and find the best way to promote your ideas.
Invoice factoring — When a business sells its outstanding invoices to a factoring company, it is called invoice factoring.
“An invoice factoring company quickly repays the business a percentage of what the invoice is worth, usually between 75% and 90%.” Uschamber.com
Tips for funding small business:
How to select the correct routes to fund your business: Answering questions about your business and how you plan to use the financing is a good way to know which direction to take to fund your business. You should be able to answer the following:
How much money do you need, and what do you need it for?/ How much debt can you afford to take on?/ What is your preferred method of borrowing money?/ Are there any changes you need to make to be eligible for that type of funding?/ Do you have a good personal credit score?/ How long have you been in business?/ What are your revenues?
The goal of any type of funding should be to benefit your business, not saddle you with debt. So, it’s wise to choose a funding type that best fits your financial needs and will help you reach your business goals.
Make your business attractive to investors and creditors: Business plan is a good way to present your small business to banks and potential investors. It should include your personal story and be able to convey your passion for your small business.The business plan will require you to do a fair amount of market research and convey that you understand the industry in which you are entering and the direction in which you want to take your business. Back up your financial projections with data. A business plan should also include a clear business model as well as a marketing plan.
Don't be afraid of loans: Loans can be scary. They can lead to worrying about the financial repercussions that accompany failure. However, without the influx of capital you obtain from loans, you may face substantial challenges when trying to purchase equipment or grow your team. You can also use loan proceeds to boost your cash flow and thus face fewer issues paying employees and suppliers on time.
Keep good business credit: As your company grows, you may want to purchase more commercial real estate, acquire additional insurance policies and take out more loans to facilitate all these pursuits. With poor business credit, getting approval for all these transactions and acquisitions can be more difficult. To keep good credit, pay off all your debt funding as soon as possible. For example, don't let your business credit cards run a balance for more than a few weeks. Likewise, don't take out loans with interest rates that you can't afford. Only seek funding that you can quickly and easily repay.
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