Money makes your business go, and usually there are very less financing methods to start businesses with operating histories. When it comes to funding, there is not a one-size-fits-all approach. The truth is, most small businesses piece together their funding from several different sources phased out over time.
Financing a business is always a very challenging part of the whole procedure, whether you are looking for start-up funds, capital to expand or money to hold on through the tough times. However, there are some creative methods (given below) that help you to start your business in the way of success.
- Debt Financing:
Commercial Loan: A Bank loan is the most common method, used for business financing. Similarly, commercial loans for short term and long term, is an excellent idea to get money. Several government and private institution provide loan on commercial and personal purpose. The difference between both is its interest rate because different banks charge different interest rate on their loan. Although, they have different interest rate for commercial and personal loan.
Government Funding: Typically, this is the most difficult way of business finance, but it is free money and you don’t have to pay back. Unluckily, there are very less changes of getting a grant because a grant might not be an option for business. According to the research, only 2% to 3% of business obtained some sort of government funds. The majority of these programs is to cover the specific industries or group of people such as youth, women or aboriginal owners, for special purpose or welfare.
- Equity Investment:
Equity means ownership, a person uses equity investment to exchange the money for an ownership share in a business. For purchasing the business shares, an investor can spend money to become a part of their organization. However, the most important thing to consider is how much ownership you’re willing to give up, and at what price. The person who acquires more than 50% share is considered as the real owner of the business and have rights to take every decision.
- Personal Saving:
Personal saving is a cost effective way or a reliable financing method to start a small business. According to the survey, it is found that most of the small business startup with personal saving, and funding from inheritances, friends, or family. In this method, you just have to pay the exact payment that you used, instead to pay any extra charges or interest. The risk factor is also reduced in funding personal loan.
However, try to keep your personal investment at least 25% in your business to increase your equity position and leverage.
- Use a Credit Card:
Whether using a credit card to fund a business is some serious risky business, unfortunately it is considered by many of the businesses. However, credit cards are among the most rapidly available ways to finance a startup. The some of the major disadvantages of using this plastic to raise fund are, you have to keep a limited amount in your bank and, the interest rate and costs, build quickly and carrying the debt can be detrimental to a business owner’s credit.
It can be a fun and effective way to raise money for a relatively low cost, small business. The online crowdfunding platform is an excellent idea to raise money for small business by sharing your story and pictures to interact other people. You can make your pitch and post it on the platform, and people can contribute toward your fundraising goal. However, this is not a long-term fundraising method. You can only collect a small amount of money. There is no long- term return on investment for followers and not even the ability to write off donations for tax purpose.
- Advance Order:
If you already have customers lined up and a clear value position in the market, then this financing method might be an excellent idea for you. Consider raising money through advance orders or pre-sale. Through this method, this not only provide you a working capital, but also serve to validate your business idea in a way that no amount of market research can.