Starting a small business you are passionate about can be exciting — you are now your own boss, and you’re going to run the show. While you might be doing something you are incredibly passionate about, one thing that can be challenging is securing funding for this business.
Looking for funding happens in the life cycle of most businesses that are going through growing pains. It is a process that is a must for every business. There are many ways you can secure emergency funding, like borrow money from the online quick loan apps or some other way around, but out of them, you must decide which one is the best for you. Here are some of the most popular ways:
Take a Line of Credit from Friends and Family
Do you want to start your small business? Anyone in your inner social circle is rooting for you to succeed and has a vested, personal interest in your company. Plus, your passion for your dreams might be infectious and visible to your friends and family. This might make them more than willing to invest in your venture and give you a small business loan.
Look for Crowdfunding Opportunities
Crowdfunding is a new trend that relies on strangers’ kindness and interest on the internet to fund your business.
First, you need to find which crowdfunding platform suits your needs, and then you will have to pitch your business and ask strangers for funding to reach a business goal. You will also have to elaborate on whether these investments are a donation or act as equity for a stake in your business.
Business Credit Cards Can Help You Reach Your Business Goals
This is a good option since qualifying for a credit card is a quick, hassle-free process compared to other means of funding. There are pros and cons to this method of financing your business. As long as you pay your credit card bills on time, you’ll be fine. You’ll even build up your company’s credit and earn rewards.
But as with any small business, there are highs and lows, and a financial crunch will mean you’re going to jeopardize your credit score if you don’t pay your due amount on time. The high-interest rate can make your debt larger and larger as months go by.
Before applying for a credit card, do some research about which card has a low-interest rate and repayment terms that suit you.
Pitch Your Entrepreneurial Idea to Angel Investors
An angel investor is generally an accredited investor who’ll fund your business with money from their pocket because they love the idea behind it.
It’s important to remember, if you’re going to get angel capital for your small business, the investor will ask for some share of equity in your company.
Approach a Venture Capitalist Firm
Venture capitalists are a group of investors or an individual who will invest in your business from money pooled from corporates, investment companies, and other funds. They don’t invest money from their own pocket.
Because of this, venture capitalists generally look for start-ups that have a guaranteed high rate of return. It’s important to get your business finances in order and show you are making a profit before pitching your business to a venture capitalist.
However, other than getting a stake in the equity in the company, venture capitalists might also ask for some say in how the business is run.
Apply for a Small Business Grant
Governments and private players are supportive of innovative entrepreneurs who have brilliant ideas. There are governmental funds allocated to support new businesses — you need to see if your business falls into a category where the government approves funding.
While applying to these grants and getting approval might seem like a long and cumbersome process, there won’t be a demand for a stake in your company or a say in how it runs.
Take a Business Line of Credit
A line of credit is a loan for a small business that works like a credit card. Businesses get access to a certain amount of finances, and they can withdraw the funds as and when needed from this credit line. Then you need to pay a monthly interest rate on the money until it’s paid back, like how you would for a credit card or loan. The advantage of taking a credit line is you are not paying extra interest on a lump sum amount that might not be needed. You can also access this fund in an emergency.
When you’re considering investment options for your entrepreneurial venture, make sure you do all the research needed and think of the long-term benefits and risks before securing funding.
Our Guest Contributor
Lily Tran is a content writer working for MoneyTap Vietnam, who writes about all things Finance. Her passion for credit, debit, loan & investment drives her to help readers get an insight into everyday finance.