Luke
The amount of money you need to start a new business ranges depending on your plans and ambitions. For instance, if you aim to start an e-commerce business with a drop shipping business model, then, in theory, you wouldn’t need more than $2,000 to $5,000 to start out. For a traditional business, nonetheless, you would, most likely, need anywhere between $30,000 and $50,000. Keep in mind that there are always those who need a lot more, as well as those who need a lot less. Either way, you need to settle the issue of financing and see where this money would come from. Here are some ideas.
Borrowing from friends and family
The first method that you should consider is asking your friends and family for a personal loan, which is both simple and elegant. Still, this can go south as well, due to the fact that you risk a personal relationship with someone close (close enough to lend you a vast amount of money). The advantage lies in the fact that you get an interest rate that’s set by a lender (sometimes this can even be interest-free) and that the terms of returning the credit are also something that you can agree upon. One more thing worth taking into consideration is the fact that instead of looking at your credit history, a person lending you money will make estimates based on your personal history and history of your relationship.
Credit card
If you don’t need that much money to finance your enterprise, you could always turn to your credit card. The advantages lie in the fact that you don’t have to undergo lengthy application processes to use them, which is especially true for people who have good credit. As for the disadvantages, there are two major ones that tend to stand out. First, the interest rate here can go up to 30 percent, which is quite a bit. Second, you get a relatively low borrowing limit, which means that you’ll A) have to restrict your ambitions, for the time being, or B) look for an additional source of funding to supplement your budget.
Online lenders
Traditionally, those looking for loans would go to banks and credit unions yet, nowadays, a lot of people find it simpler and more effective to apply for online loans. The first reason to do so is incredibly low interest-rates that go as low as 7.5 percent. Second, you get to borrow as little as $5,000 which means that it could also be a great temporary solution for a cash-flow problem, not just a launch-specific loan. Lastly, this is something that can be done via an online application, which is a pragmatic method that allows you to avoid going through tons of paperwork.
Factoring
Once you’ve already launched your business, you might find yourself in a scenario where you have an imminent cash flow crisis. In this scenario, you might want to look towards your cash receivables for answers. You see, this is the money that you’ve already earned but may not have time to collect. Instead of selling your physical assets or getting yet another loan, why not sell some of these invoices. This is a simple, yet elegant, solution that may help you get through this crisis virtually intact. The way in which it all works is also fairly simple. You get the most of the money right away while the rest (minus a 5 to 1.5 percent fee), you get when the money finally gets collected.
Find an angel investor
Finally, you can get someone with both experience and money to invest in your business, thus ensuring not only funding but also patronage for your young enterprise. For this to work, nonetheless, you need to know how to attract the interest of an angel investor. First of all, try to surround yourself with a reliable team so that your entire endeavor appears more credible. Second, prepare an ironclad business plan, based on thorough market assessment, competitive analysis and solid sales plan. The point of business is to generate profit and if you can show your potential investor just how you plan to do so, you just might be able to persuade them.
The list goes on and on, ranging from boosting your appeal to venture capitalists, to securing an SBA loan. Just keep in mind that accepting money from someone means making a commitment and the source of funding may dictate the future course of your business. This is why you need to carefully consider where the money is coming from and not be blinded by the amount you need.
