One-third of small businesses finance their startup with less than $5,000 dollars.
The truth is inevitable: no matter how much you really need, you’re always going to need capital.
But, trying to figure out just which route to take when financing a business can be hard.
Should you take out a bank loan? Open a line of credit? Look for an angel investor?
In this article, we’ve packed the top seven need-to-know tips on how to get business capital.
Financing a Business
There are various ways to obtain financing for a small business.
Here’s a breakdown of the top seven:
1. Angel Investor
Angel investors use their own money to help bolster your startup with, oftentimes, lower interest rates than venture capitalists. While you may receive less up front, you may end up having to pay out less in returns long-term.
Receiving capital from angel investors is also less risky than going into debt with a bank or other financial institution. It doesn’t impact your credit score and you don’t owe them money if the business fails.
However, it’s not as simple as an answered prayer as the name might imply. It’s important to know your profession, understand your market, and convey that confidence to your prospective investor.
2. Get a Bank Loan
Bank loans with large financial institutions are one of the easiest ways to obtain a loan. You can simply apply by visiting a local branch.
The downside is that bank loans are risky. In contrast to an angel investor, you’ll be required to pay back all the money you owe, plus interest and fees, should your business fail.
It’s important that you are confident in your business prospect before you commit to a bank loan for financing a startup.
3. Try a Government-Backed Start Up Loan
To qualify for a government-backed start-up loan, you must be 18 years or older and have the plans to start a business.
These loans have no application fees, a fixed interest rate, and come with exclusive business offers.
4. Open a Line of Credit
If you have an excellent credit score, opening a line of credit to fund your business might be your best bet. With a high credit score, you can obtain a low-interest credit card that will reduce your overall spending.
5. Trade Your Future Earnings
Investors may be willing to invest in exchange for future earnings as opposed to equity in a company. However, this lower risk tactic may prove to be problematic if a business isn’t successful.
6. Use Your Home
Own a home and have some equity? Home equity loans typically have lower rates than traditional bank loans or credit cards.
If you’re interested in starting a small project, crowdfunding might be for you. Simply post your project on a crowdfunding site, attach an inspiring and purposeful message, and wait for capital to roll in!
Establish a Business Plan and Generate Capital
Once you have a solid business plan in place, then you can decide how to fund a new business. With many funding options available, you can take the steps to finance a business and build your dream, regardless of your net worth.
Need some inspiration to kickstart your journey? We offer life-coaching for those who are ready to take their career from employee to owner or high-paid consultant. Ready to climb the corporate ladder? Contact me today.