You have always aspired to become an entrepreneur. Now you’ve got a business idea in mind, an attention-grabbing name in mind, and even the space for your startup company. You’ve got everything you need to put up a business, except for the money. So how do you finance your startup company?
There are small business loans that can solve startup financing woes. But the truth is that a lot of large banks won’t lend to start-up companies. The risk is just too high for them to support an unproven business venture.
Still, that fact should not discourage you from seeking financing options for your startup company as there are other ways to fund your business:
- Loan from a family member or friend. If you have a family member or friend who has extra money to lend you, try to muster enough courage to ask for their financial help. It’s very convenient—no forms to fill up and no documents to present. You must be able to convince them that your business idea will translate into a profitable venture down the road.
Of course, the loan should be in writing so that the terms, particularly the repayment, are clear to both parties. The downside to this option is that things can really get awkward if you are unable to pay back the loan.
- Credit cards. Some financial experts may warn you about using credit cards to fund your startup firm, but you should know that a lot of entrepreneurs resort to this financing option. According to the National Small Business Association, 37 percent of small entrepreneurs turn to their plastics for financing.
There are many advantages, like good rates (average of 16 percent) and even zero-percent interest promos. Moreover, it is very convenient as you don’t have to present documents to get your cash. And responsible credit card use can build your business credit over time.
- Crowdfunding is a very new financing option for startups. Sites such as Kickstarter and Indiegogo are used to raise money from other people, who get token incentives such as pre-release products. It’s also a good way to attract venture capital investment, especially if the crowdfunding campaign is successful. Some of the more inspiring crowdfunding success stories are Pebble Time smartwatch and Petalite Flux, a fast iPhone charger.
- Venture capital. Speaking of venture capital, this is also another funding option for start-up firms. Venture capitalists are professional investors who can grant you up to a million dollars of financing if you can prove to them that your business model can make a lot of money in the near future. You must also prove to them that you have the manpower to make your business successful. However, venture capitalists are also a high rate of return on their investment.
- Angel capitalists. These are high-net-worth individuals who are interested in supporting startups. Angel capitalists aren’t looking for a high rate of return from their investments. But they would likely demand some sort of control in your company.