The Best Ways to Finance a Business

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    Finance a Business

    Using your own money to start up a business may be a possibility, but it’s likely you’re going to need a more substantial amount of cash to get up and running successfully. Every company needs a pool of money in the early stages to pay for the initial set-up fees, purchasing stock and hiring staff members. There are so many outgoing costs that using the money you already have in the bank may not be enough to make those enormous expenses early on.

    First and foremost, you will need to create a business plan. Business plans will often determine whether you are accepted or rejected by lenders if you choose to go down the borrowing route. The plan should outline your expected expenses, prospective income and a marketing plan at the very least.

    So, what are the next steps on getting the necessary funding your new business?

    ·        A personal loan

    Many prospective business owners choose to take out a personal loan to fund their business. These loans are paid out to the lender by the bank and are not secured against your assets (e.g., homes or cars) if you ever happen to struggle to make the repayments and are worried about being repossessed. The benefits of a personal loan are that you can often borrow more than what your credit card will allow, and they are also quite easy to budget for as the repayments are usually made on a monthly basis. However, unlike other types of loans, you are likely to be paying a far higher interest rate and whether you are accepted for the loan will often depend on your personal credit score. If you are looking to start a business and apply for a personal loan to fund your expenses, it would be wise to keep a regular check on your individual credit score and ensure your finances are under control, so no crucial mistakes are made. Luckily, there are many ways to check and get your credit score, and you should do so once a year.

     

    ·        Turn to friends and relatives

     

    If you believe that your business won’t require a massive amount upon starting up, then you may prefer to turn to friends and family who could lend you the cash needed. The benefit is that you won’t be tied into any legal contracts or pay significant amounts of interest on the loan; however, lending from loved-ones can cause complications and potentially damage personal relationships if anything should go wrong with either party. If you do decide to go down this route, there will need to be terms and conditions agreed beforehand on what will happen if the business should ever happen to face financial decline and their loan can’t be paid back. Once the cash has been transferred over to you, it would be best to set up an automatic transfer from your bank account to theirs, so you never forget to make a repayment when it’s owed.

     

    ·        Angel investors

    You could call on former employees, an acquaintance or an individual found on a funding network to become a lender for your business; who are otherwise known as ‘angel investors.’ Angel investors tend to take a percentage of the profits and go on to become a shareholder as the company grows in size. They may decide to be an active partner who gives advice and has a say in the business decisions, or a silent partner who merely wishes to make an investment and live off the profits as a second income. There will be terms and conditions that need to be agreed upon, but ultimately the type of angel investor you wish to work with is your choice.

     

    ·        Crowdfunding

    Many people now decide to set up a crowdfunding page when they are looking to raise a large proportion of money for a good cause. Although most crowdfunding pages are for charities, some people decide to set up a page to raise money for their ambitions and share it on their social media accounts to gain the attention of friends and family. Although you may be embarrassed to ask for help from acquaintances, the platform was traditionally used as a way of raising money for businesses and projects run by prospective business owners who have gone on to secure huge success. If people believe in your cause, they are likely to donate. You may also like to offer rewards to those who donate as a way of saying thank you; for example, concert tickets, free gifts, and updates on your progress.