Most entrepreneurs who are just starting with their small business have limited financial resources. Financing the whole operation is actually one of the most limiting factors why people back out of the business idea to begin with. Most often, entrepreneurs borrow money from friends or family members but what are some other ways to finance your small business?
Maryam K. Ansari, writer from Reuters, wrote an article on financing small businesses. She mentioned in her article that for a small business, there are many avenues you can wander down, if you’re seeking financing. You can read her article entitled Financing Small Businesses: Do’s and Don’ts for more of her insights and thoughts.
According to Maryam, there are 5 ways to finance your small business. When I read her article, I was relieved by the thought that I don’t have to withdraw my 401K for business financing.
5 Ways to Finance your Small Business
1. SBA Loans.
You can go to your local bank and ask about SBA backed loans. Different banks will have different criteria on the types of loan offered. Check out the SBA website for information and to find small business loans where you live.
There are a number of local banks that provide loan for small business owners. However, you will need to show a solid business plan to prove that your small business will foster. There are also SBA loans that offer short-term programs for payment schedules.
2. Family and Friends.
This can be a great source of early funding without much of the formalities. But be careful– it becomes very hard to cut family and friends out of a business.
One of the advantages from borrowing money from friends and family is that you can get a lower interest rate or non-at-all, if they are that generous. However, it is advisable that you write things in worst cases when a misunderstanding arises. Writing the loan agreement is a formal business approach that could secure you and also the party that you have borrowed the money from.
3. Crowdfunding websites.
Several websites exist that allow donors or investors to give to a project with the click of a button. Investor or donor funds are pooled together and given to the business.
Crowdfunding sites can help fund your business without the risk of traditional financing. With crowdfunding, individuals from around the globe will donate funds to projects that will include your small business. There are a number of crowdfunding websites available in the internet that will focus on meeting your business needs.
4. Banks.
Loans and lines of credit are available from banks. For a new business with no history, a bank loan would be difficult to obtain.
Bank loans or using your credit cards to fund your business may not be the wisest idea but it could be an option for you. However, swiping the plastic is one of the easiest ways. But you have to remember that credit cards and bank loans have higher interest rates.
5. Bootstrapping.
This is just a fancy way of saying “fund it yourself.” Many small business owners put their own money into the small business. This may come from savings, personal lines of credit or even home equity loans.
You can use your savings or for the last option, your 401K. But there are risks involved when using this as your financing option. You have to consider that starting a small business doesn’t guarantee 100% cash return in one year. Bootstrapping should be one of the last options that you consider when financing your small business.
Finding reasonable ways to finance your small business should be taken by heart. Money matters are serious matters and you have to understand that not having a solid financial support will disrupt the success of your venture.
Do you know of other ways to finance your small business? Please share your ideas with us through the comments below.
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