When you decide to launch your own business, one of the first things you need to decide is how you will secure the financing you need to get the company off the ground. There are several ways you can secure funding. It takes a significant amount of money to launch and sustain a startup and you may not see a return on investment immediately, so it is important to carefully consider your financial options before making a decision. Here are seven avenues of financing you may want to pursue for your business.
Take Out a Traditional Business Loan
Banks offer several types of loans that could help you launch a startup. If you have good credit, you stand to qualify for a substantial loan and may be able to use it to build inventory or purchase equipment. However, banks often have stringent qualification requirements. If you have a poor or limited credit history, you may not qualify for this avenue of financing. If you are approved, bank loans serve as an excellent avenue of flexible funding so your company can grow.
Attract a Venture Capitalist
Finding a venture capitalist who is willing to invest in your business can be challenging. Venture capitalists such as Mark Stevens, the managing partner of S-Cubed Capital, risk investing in startups when there is potentially a huge return involved. If your company’s product or service has a large market with the potential for astronomical growth, venture capitalism may be the ideal financial solution for you.
Find an Angel Investor
Angel investors are wealthy individuals who are willing to invest in your business for equity or a share of the profits. Not only does this financial solution provide you with large amounts of money, but it also allows you to work with an experienced individual in your industry. Many angel investors are successful business people with vast amounts of knowledge in their chosen field and can help you navigate the complex world of business. However, if you choose to go this route, it is vital to research potential investors before approaching them for a pitch. If you are launching a tech company, you need an angel investor who is a tech expert. Similarly, you need a fashion mogul if you intend to enter the apparel industry. The right investor will be as much of an asset to your company as the money he or she provides.
If you’re looking for a small investment to fund a one-time cost, crowdfunding could be the way to go. This platform works by advertising your business on the Kickstarter website and letting family, friends and strangers pledge money to your company. This is a highly effective method of raising cash quickly for smaller costs such as product development, but it is not enough to sustain your company long-term. However, it is an excellent way to jumpstart your business.
Apply for a Microloan
Many small businesses, especially those that are just starting out, do not qualify for traditional bank loans. New companies often have limited credit histories that prevent them from being approved for traditional loans but microloans are a great alternative. This type of financing is offered by small, independent financial institutions called microlenders. Interest rates are usually higher than the ones that come with bank loans, but microloans are easier to qualify for.
Use a Credit Card
If you have a credit card with a large limit, you may want to use it to fund your business yourself. Because there are no other people directly involved in this type of financing, you can use your credit card to build the company so it accurately meets your vision. You don’t have to cater to anyone else’s preferences because no one else has a stake in the company. However, this is a risky venture as you will be left with astronomical debt if your company fails.
Utilize Your 401(k)
If you have set aside a large sum of money for retirement, there are ways you can legally withdraw it to finance your business idea. As with using a credit card, this option gives you the flexibility to grow the company as you see fit but it also comes with substantial risk. If the business fails, you will lose all of the money you put in.
Regardless of the type of company you want to start, financing is a critical component. There are several ways to secure the funding you need and different options work for various businesses. In some cases, companies use a combination of financial solutions to grow to their full potential. If you are trying to determine which option is best for your business, carefully consider the company’s goals and structure. Knowing exactly what you need financing for will help you decide which financial solution will be most beneficial for your business.