If you’re starting a new business, you likely need funding to pay for overhead, supplies, operating costs, and purchasing inventory before you launch the company. There are many ways you could obtain new business capital. Often, business owners use a mixture of several sources.
How Startup Companies Obtain Funding
How Startup Companies Obtain FundingIt may be challenging to secure funding for your new business. Some of the most common strategies that new business owners use include:
- Self-funding. If you have personal savings, you could use some or all of this to fund your new company. Doing so can help you retain complete control of the business and avoid paying interest if it prevents you from having to borrow money. The downside is that you can lose your savings if your business fails.
- Borrowing. Many new business owners borrow money from family, friends, banks and lenders. Today, many online lenders can offer you more favorable terms than a brick-and-mortar lending institution.
- Bringing in Investors. Another option is bringing in investors. Often, this alternative won’t require you to repay a loan. But instead, you may have to give up some equity in your company.
Understanding Small Business Loans
Many options are available if you decide to borrow some or all of the money you need to start your business. These include the following:
- SBA microloan. The U.S. Small Business Administration offers several funding alternatives. The microloan program can provide up to $50,000 of working capital.
- Microlenders. Many private and non-profit lenders offer microloans to startup companies that do not qualify for standard business loans.
- Personal business loans. You may qualify for a personal business loan if you have an excellent personal credit score. Lenders usually fund these loans within a week, so you can quickly have the funds you need.
- Venture capital. Most venture capitalists only invest in high-growth companies. In return for the financing, these investors usually want a seat on the board of directors.
- Small business grants. Grants offer “free” money for your startup. Certain business owners, such as women and minorities, are more likely to qualify for small business grants.
- Crowdfunding. Business owners can also raise money via crowdfunding. This online campaign usually provides gifts or incentives to those who donate startup funds.
How to Fund Your Startup Company
Before you commit to a small business loan or other types of borrowing, you must prepare. Otherwise, you could end up borrowing too much or not enough. The key steps you should follow are:
- Identifying how much capital you need
- Writing a business plan
- Compiling key documents (such as tax returns, bank statements, and legal documents related to the business)
- Deciding which type of funding is right for your specific needs
- Make sure you can repay the loan
If you need assistance funding your business, you could talk with a small business expert who can guide you through the process and ensure that you don’t leave any of the essential steps out.
