It is an amazing feeling when you are starting up your own business. The excitement causes a rush of adrenaline that makes you feel like you can take on the world. The truth is, you can, but only with a clear financial plan, the patience to go through with it, and clear realistic expectations.
The first part of this is ensuring that the capital for starting your business is intact. This is one of the most stressful stages of starting your business, but there are a few ideas that can help you get throughit.
In seeking financing, there are two categories of funding that are available for business startups: debt-based financing and zero-debt financing. The more common of these two is debt-based financing, so let’s start with examples of this.
Bank Business Loans
This is by far the most common source of funding for businesses. Different banks offer different rates on loans. Some determine the amount given and interest rate charged by the age of the business. It is no secret that banks offer better loan limits to mature, high profit-making businesses than to smaller newer businesses. This is because startups are viewed as liabilities, whereas mature businesses are more of assets than liabilities.
The main disadvantage of using bank business loans as a source of funding for your startup is the fact that most demand that a business be running for a year or more for them to even consider giving a loan. This is because within a year, a bank can easily determine the profit trajectory of a business and determine if it is capable of handling such debt responsibilities. It also makes it easy to figure out the loan amount and interest rates.
Make use of any and all government loans available, as they are bound to have very low interest rates. A good example of such a government business loan is the US Small Business Administration (SBA) microloan. This is a loan that was originally set up to help veterans, young women, and minority groups in the US to access business funding easily and at low interest rates, below 13%. Besides this fact, another advantage of this kind of loan is that, unlike with bank loans, these do not demand that a business be more than a year old. In fact, you can apply for an SBA microloan at the beginning of your business. Because of this ability, if your business requires less than $50,000 to start off, this government loan can fully fund you.
Our favorite advantage to getting an SBA microloan is that the SBA walks with you through the beginning phases of your business, to mentor you and try to ensure that you succeed. This, in itself, is the biggest disadvantage of getting an SBA microloan, however. With so many advantages, many new business owners try to get this funding, thus creating high competition for the loan. You will, therefore, have to go through a long, rigorous process in applying, and it may take a while before you are approved.
Personal Loans to Fund Your Startup
This is different from a business loan, as the loan gets taken out in your name not, in the name of the business. Banks can offer a personal loan if your credit score is above 600 points. However, according to nation21loans.com, you should know that since the loan will be in your name, if your business fails, you will be liable for the loan, not your business. It also means that failure to pay the loan will affect your personal credit score.
Other Debt-Based Sources
Some of the other sources that you can consider, which may border on the line of inventive sources, include the use of business lines of credit, and a business card. In fact, you could make use of both in the startup case.
Business lines of credit work in this way: you are issued a card with a business line of credit that has a limit determined by the lender. Now, you can draw from the credit line as much as needed until you reach the limit. The main advantage in using a business line of credit is that you are charged interest only on the amount you spend. It also gives your business a level of stability, even when business isn’t so good, and offers you access to funds at any time needed.
Business credit cards work pretty much the same way as personal credit cards, only they are issued in your business’s name. Handled well, and payments done in time, these can help your business build a good credit record, making it easy to get good funding from a variety of lenders.
The second kind of financing, as previously mentioned, is zero-debt financing. This comes in these specific shades:
The only way to really put your heart into something is by investing in it. If you want your business to have a chance at surviving, you need to be the first investor into it. Anything you sacrifice for, you will nurture. This also gives other sources of zero-debt sources the confidence that this business is bound to succeed. Therefore, before going out to look for financial assistance, ensure that you have funds set aside to start your business in the form of cash, or in assets that you can put up as collateral for funding from any of the above debt- based financing options.
This term is used loosely here, to define investments from friends or family members who give funds, in exchange for a part of the business. What this means is that they don’t expect to be refunded the money given, but they expect to be a part-owner of the business. This is just like buying shares into the business. The danger of this is that you may not always have the final say in any business decision, especially if family is involved. Also, going into business with family and friends will test your bonds and your boundaries.
With all things considered, starting up a business may not be so hectic or difficult, after all. The main factor here is discipline, managed expectations, ingenuity, and developing or cultivating good relationships: you are bound to need them. These are just a few reliable funding sources, and there are more that you can consider and make use of. So take the chance, use what’s available, run with it, and make your startup soar!
I am a professional Content Writer at Fabglass – a custom E-commerce company based in USA corporate sector. My skills also include user experience & conversion optimization. Love to write about travel, home decor, Auto, health, Education etc.