Ways to Finance Your Business Venture: Bank Loans, Online Lending, Credit Cards, Angel Investors, and Venture Capitalists
Explore diverse financing options for your business venture, including bank loans, online lending platforms, credit cards, angel investors, and venture capitalists. Learn about the pros and cons of each method to make informed financial decisions.
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Financing New Venture Unit-6
There are 18 Ways to Finance Your Latest Business Venture 1. Bank loan Banks have gotten stricter with loans. But, if you have a solid credit score (usually above 650), have assets, and you are in good shape with your taxes, then you shouldn't have a problem obtaining a bank loan. Banks like Wells Fargo, Huntington National Bank, J.P. Morgan Chase, and U.S. Bank National Association are the most active when it comes to issuing small business loans.
Ways to Finance Your Latest Business Venture 2. Online lending/peer-to-peer If you can't obtain a traditional bank loan, there are online lending options like Kabbage, Foundation, and OnDeck. You can be approved for a loan up to $500,000, it takes only about an hour to complete, and funds are available within a business day. There are also peer-to-peer lenders through Lending Club, Prosper, and Funding Circle. The interest rate may be higher, but you'd be dealing directly with the lender, so the criteria is not as stringent as traditional brick- and-mortar banks.
Ways to Finance Your Latest Business Venture 3. Credit cards There are definitely pros and cons when financing your business using a credit card. For starters, it doesn't take long to get approved for a business credit card, and minimum payments are fairly low. If you want to get your business up and running quickly, and don't have much money coming in, credit cards can be an attractive option. On the downside, using plastic can be risky if you fall behind on a payment. Even missing just one payment could do serious damage to your credit score. And let's not even talk about those interest rates. If you make only the minimum payment, you could have to carry this debt for years.
Ways to Finance Your Latest Business Venture 4. Angel investors For early-stage startups, angel investors are a go-to-source of financing. Angel investors typically invest $10K -$1M and expect a 20- to 25-percent return. If you want to win over an angel, make sure you're knowledgeable, succinct, and have an exit plan in place.
Ways to Finance Your Latest Business Venture 5. Venture capitalists If you're already beyond the startup phase and have revenue flowing in, but still need money to grow, there's no better option than a venture capitalist. VCs will fund anywhere from several million to several billion dollars. Make sure you do your homework and find out if the VC is a good match for your company, because typically you will be getting their input on how you run your company. Here are a few of my funding tips to help you on your journey.
Ways to Finance Your Latest Business Venture 6. Friends and family One of the most common ways to fund your new business, especially in the startup phase is by hitting up the friends or family who have extra cash to spare. The best part? Paying your loved ones back includes low- or no-interest payments. Please don't take advantage of your friends and family, however. Approach them after you have a business plan in place and inform them of the potential risks involved.
Ways to Finance Your Latest Business Venture 8. Home equity loan If you're a homeowner, you could consider a home equity line of credit for financing your business. While HELOCs are often used for home repairs, there aren't any restrictions on how you can spend the money. Plus, payments are flexible and have lower interest rates than traditional loans. However, don't rely on a HELOC as your only source of financing, since your home is used as collateral. It should be combined with other funding options.
Ways to Finance Your Latest Business Venture 9. Crowdfunding Thanks to websites like Kickstarter and Indiegogo, you can raise money for your new business at a low-cost -- while having a little fun at the same time. Besides raising money, crowdfunding gives you a chance to validate your business idea. If it doesn't reach it's goal, it may be because there isn't a market for your idea. Make sure you read the fine print before selecting a crowdfunding site so you're aware of how big a cut the site takes and what happens if you don't reach your goal.
Ways to Finance Your Latest Business Venture 10. SBA loan If you need funding to help your small business grow, there's no better option then the variety of loans offered by the Small Business Association. Whether it's money to recover from a natural disaster or purchasing new equipment, SBA- backed loans have low interest rates and favorable terms. Before applying for a SBA loan, make sure you meet the criteria to be considered a small business.
Ways to Finance Your Latest Business Venture 11. Microloan If you're an unable to secure a loan from a bank but need capital for new equipment, for example, you could seek a microloan. Microloans are usually no more than $50,000, with the average being around $13,000. And a microloan doesn't require as much documentation as banks do. You can obtain a microloan from the SBA, nonprofits like Access to Capital for Entrepreneurs, or microlenders like Square Capital.
Ways to Finance Your Latest Business Venture 12. Grants If your business is involved in science or a research-oriented field, you may be eligible to receive federal grants. The SBA offers grants through the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs. Review the fine print, however. Some of these grants will require you to hand over part of the IT in your company or other intellectual property, so tread carefully.
Ways to Finance Your Latest Business Venture 13. Contests There are plenty of established businesses that host business grant contests. FedEx, for example, has an annual Small Business Grant Contest where the grand prize winner receive $25,000.
Ways to Finance Your Latest Business Venture 14. Factoring/invoicing advances With factoring and invoicing advances, a service provider will give you money upfront on invoices that have been billed out. This process is great if you're in a pinch and need money as soon as possible. However, the fees that factoring services charge can add up over time. And the process can get a little confusing. I recommend you read this post from Business News Daily before settling on this financing option.
Ways to Finance Your Latest Business Venture 15. Product pre-sales Product presales can be an effective method to finance your business, since it doesn't require you to take out a loan or pay back any debt. And just like with crowdfunding, it can validate your business idea.
Ways to Finance Your Latest Business Venture 16. Pledge percentage of future earnings You may be able to exchange a percentage of your future earnings for cash right now. For example, you could give up 5 percent of your future lifetime earnings for $500,000. It's a risky move, and there are some legal gray spots, but it's a unique proposition.
Ways to Finance Your Latest Business Venture 17. Sell assets Whether it's office equipment or your personal vehicle, selling off assets is one of the easiest ways to finance a new business venture. You don't have to be concerned about paying anything back, and you can purchase the item again, if you wish, when you are in better shape financially.
Ways to Finance Your Latest Business Venture 18. Keep your day job It's not uncommon for entrepreneurs to keep their day job while getting a business off the ground. You can even use a virtual assistant to respond to emails, answer calls, and manage other freelancers while still participating in the 9-to-5 grind. You can then take some of your salary and invest it in your business. With my first company, I managed to work at my full-time job while building my startup on the site. We were able to launch this company months later and eventually ended up selling it.
Ways to Finance Your Latest Business Venture 19. Side hustle There's no shortage of side gigs available to make extra money. Whether it's becoming a freelancer, Uber driver, or finding a part-time job like bartending, you could take this extra income and use it to finance your business.
