You have finally decided to jump off the proverbial “hamster wheel”, or better known the drudgery of the 9 to 5 job, and become your own boss. You have a pretty good idea of what business you would like to have, have already set up certain things in motion, and you are almost ready to go. However, there is a ‘small’ matter to attend to before you launch – raising enough money to begin. Finding funds is probably one of the most difficult things to do when launching your own company.
There are so many things you will need from the get go – computers, business premises (if you don’t want to work from home), stationary and other supplies, money for rent and payroll and probably a few other variables depending on the type of your business. The bad news is that all of these things cost money which, for a new entrepreneur, is oftentimes not readily available.
Banks usually frown upon the idea of lending money to new businesses because a new company has no cash flow as yet to guarantee loan payments. However, there are certain bank loans that are available to new business owners, as are other creative ways of securing the much-needed funding for your business adventure.
Traditional and Non-traditional Funding
- Home equity loan – If you are a home owner, you are probably eligible for a home equity loan on the segment of the mortgage that you have already paid off. The good thing about these loans is that they come with a relatively low-interest rate and can provide a substantial lump sum for your business.
- Borrowing against insurance policy or retirement fund – Borrowing against insurance policies can be a good source of cash and is relatively quick and easy. There are no credit check procedures to go through and this kind of loan is tax-free because it is recognized as income. Also, if you have a retirement plan in place, you can sometimes borrow up to 50% of its value depending on the plan’s terms.
- Crowdfunding – Crowdfunding sites like Kickstarter, Indiegogo, Crowdfunder, RocketHub, Crowdrise and Appbackr (which specializes in donation-based funding for app designers) have become one of the fastest ways to raise thousands and even millions of dollars over a relatively short period of time. There are two main types of crowdfunding – donation-based and investment funding. The first one implies people donating money to your project in exchange for your products or other kinds of rewards while the second is about businesses selling ownership stakes online to individuals who then become owners or shareholders in that particular business.
- Personal savings, friends and family – These funding sources are pretty self-explanatory and one of the most common ways to raise the money you need. It has been estimated that almost 70% of all start-ups get the initial funds from the loved ones. But be aware that by borrowing from your friends or family will turn them into your creditors and, if your business goes pear-shaped, you can damage the relationship with the people that you love the most.
- Pawn Loans – These are particularly helpful to people with inadequate credit history and are also quite quick and easy to obtain. Usually, it takes only a few minutes for the loan to be approved and the terms and conditions are pretty straightforward. You can, for instance, get up to 60% of the value of your car, motorbike, van or another personal item of value. There is no vast paperwork to deal with and, in most cases, all you need is the item you want to borrow against and your ID.
- Angel Investors or Business Angels – These are usually affluent private investors who are willing to provide funds for startups in exchange for convertible debt or ownership equity. Angel investors are not too concerned with the company’s potential to grow or with deriving huge profits from their investments but are rather focusing on helping the company to become successful.
There are many more creative ways for new business owners to raise the much needed funds including credit cards, micro-loans, credit unions, peer-to-peer lending, specialized lenders and finance companies. Whichever way you choose, make sure you have an airtight business plan and to diversify your funding sources as much as possible. Once you get the money, use it wisely, frugally and solely towards developing your business.