How to Finance Your New Business
December 19, 2018
Starting a new venture can be overwhelming, from finding customers, marketing to funding. Finding financing can be challenging for every business owner especially for new ventures. Entrepreneurs ought to diversify sources of funds to improve their chances of getting the perfect financing option for their needs. Therefore, business owners seeking finances for their startups can consider the financing options discussed here.
The Small Business Administration (SBA)
Most banks are reluctant to finance new ventures. Consequently, the U.S. Small Business Administration offers an array of loans for entrepreneurs venturing into new businesses. You can choose from a loan program that suits the need of your business. However, you must meet specific qualifications to be eligible for SBA’s even if they are open to all small businesses. Your venture must meet the definitions of the government concerning small businesses, meet other criteria based on the loan type you are applying for, and apply for commercial loans from a financial institution that deals with SBA loans because SBA doesn’t offer loans directly. Consequently, you must meet the qualifications of the bank that provides the SBA loan.
One of the first places an entrepreneur will run to when looking for funds for a new business is a bank. Bank loans are a traditional source of funds for new startups. The process of getting a loan from a bank takes a couple of weeks, and you will be required to fill up a loan application form. Banks also require entrepreneurs to give certain documents like a business plan before approving their loans.
Friends and family
Many entrepreneurs seek financing from their family and friends. Most financial institutions are reluctant to offer funds to new ventures. Therefore, you might have to consider borrowing from friends and family to finance your startup. Alternatively, you can make an equity investment with your friends and family as a way of funding your new venture.
Angel investors are small groups or individuals who invest in ventures through equity purchase. Angel investors offer guidance, money, and expertise to assist your new venture to grow. It is not easy for entrepreneurs to get angel investors because they look for enterprises that have the potential to develop. The investors also opt for ventures that have a reasonable exit strategy and those with a viable business plan. Therefore, make sure you have all the requirements as you seek out an angel investor.
It is gaining popularity in the business world. Factoring offers funds to businesses that have cash flow issues because customers pay invoices slowly. However, factoring as a source of funds for a new venture can only be used while working with government or commercial customers with good credit.
Entrepreneurs no longer have to suffer due to lack of funds to venture into new businesses. You need to explore all the financing options before settling for one. Avoid hoping from one financing option to another to avoid time wasting.