Everyone has entertained the notion of becoming their own boss at some point. However, some people have the drive and initiative to start their own business. According to experts, over 600,000 new businesses open their doors in the United States every single year. Some open up subsidiaries of businesses like a Starbucks or a Waffle House franchise. Majority of these new enterprises will be small businesses run by people just like you.
However, starting a new business doesn’t just require determination, it will also need plenty of capital.
Without hefty initial funding, your dreams of opening a new business will be over before they even begin. However, there are a few tried and tested methods you can use that will guarantee you have the money needed.
Below are four effective ways to get the financing you need to become a business owner.
1. Take Out Personal Loans
One of the riskiest but perhaps one of the most surefire way to get a lot of money in a short amount of time is by taking out personal loans. Unlike a business loan, which can be denied based on the potential profitability of the business and the preferences of the bank you’re asking, these loans depend solely on your financial capabilities. If you are in a great place regarding you finances, you could be in the position to ask for large loans or even negotiate with a mortgage lending company for the money you need. However, this carries a lot of risk for you. If your business can’t recoup the money in time, you may be deep in the red personally. Gage the risk and rewards of this method before committing to it so you don’t lose all your finances.
2. Apply for Business Grants
If you don’t want to take out a loan, you can instead petition to a financial organization or similar enterprise for financial aid. There are many organizations whose sole purpose is to give out financial assistance to business owners. Each organization will have different criteria. Some cater to different types of aspiring business owners, such as women or color.
Some only give financial assistance to specific business categories such as eco-friendly businesses. The trick is to find the right organization to submit your petition to. Thoroughly research the organization you’re trying to get a grant from so you can present the best case possible.
3. Find an Angel Investor
Getting accepted for a business grant can be difficult, especially since there could be hundreds or even thousands of proposals that these organizations have to process. If you’d rather make your case to someone more personally, you can try to appeal to an angel investor.
Unlike venture capitalists, who are more concerned in getting in the ground floor of a possibly massively successful business, angel investors provide money based on other reasons. They can be moved because of your struggles, delighted by the idea of your business, or any other reason under the sun. Angel investors also typically don’t expect their money back quickly and are content to be silent partners. Of course, not every angle investor is the same and you may have a different arrangement with each one you meet.
Make sure you have clear boundaries with an angel investor and go over every inch of paperwork with a fine-toothed comb. This will protect you and your investor from any possible confusion after you’ve secured the finances you need.
4. Crowdsource
The internet can be a great source of revenue, especially if you can gather enough people to do so. Crowdsourcing sites like Kickstarter, Go Fund Me and the like allow you to present your case to millions of users around the world. They can then pitch together to meet your financial goals. Of course, the patrons and people who donate to your crowdsourcing efforts will require something in exchange. This sites usually include goals and milestones.
Should people donate a certain amount, they can expect a gift or product in return for their patronage. This can be a little costly and should definitely be accounted for when you calculate the amount of money you’re going to ask. Crowdsourcing can also be very subjective, and you will have to make your business proposal more attractive than countless other enterprises on these platforms.
Your small business can be the first and biggest step to securing your financial future. However, making sure your fledgling enterprise gets funded can be a massively difficult undertaking. These tips can help you amass the money you need and put you on the path to becoming a boss on your own right.
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FAQs
Sources of Financing for small business or startup can be divided into two parts: Equity Financing and Debt Financing. Some common source of financing business is Personal investment, business angels, assistant of government, commercial bank loans, financial bootstrapping, buyouts.
Which of the following methods are used to finance a new business? ›
Debt and equity are the two major sources of financing.
What is the financing provided for new ventures? ›
Venture capital (VC) is a form of private equity and a type of financing for startup companies and small businesses with long-term growth potential. Venture capital generally comes from investors, investment banks, and financial institutions. Venture capital can also be provided as technical or managerial expertise.
What are the methods of venture? ›
The Venture Capital Method has 2 steps: Step 1: Calculate the terminal value of the business in the harvest year. Step 2: Track backward with the expected ROI and investment amount to calculate the pre-money valuation.
Which of the following are the methods of venture financing? ›
Venture capital firms make private equity investments in disruptive companies with high potential returns over a long time horizon. The three most common securities used by venture capital investors are convertible notes, SAFE notes, and preferred equity.
How do startups get funding? ›
Startup funding can involve self-funding, investors and loans and may be sourced from banks, online lenders, people close to you or your own savings account.
How many types of financing are there? ›
There are two types of financing: equity financing and debt financing. The main advantage of equity financing is that there is no obligation to repay the money acquired through it. Equity financing places no additional financial burden on the company, though the downside is quite large.
What are the three methods of financing? ›
These are short, medium and long-term. Short-term refers to funds that generally have to be paid back within a year. Medium-term financing usually requires funds to be paid back between one and five years; whilst long-term finance is generally anything that is paid back after five or more years.
What is the most common form of financing for a small business? ›
Here are some common financing routes small businesses take: Bank loans: A traditional option, but requirements are strict. Lines of credit: Flexible access to funds as needed. Angel investors/venture capital: Equity financing ideal for high-growth startups.
How are small businesses financed? ›
Small businesses typically use debt or equity financing — or a combination of the two. Debt financing involves borrowing money from a third party, which you then repay, with interest. Equity financing, on the other hand, means you receive money from an investor in exchange for partial ownership of your company.
– Debt financing, where you take out debt to finance the venture, including business loans, microloans lines of credit, business credit cards. – Equity financing, where you offer ownership in your business through shares to get financing, such as venture capitalism and equity crowdfunding.
What type of financing do most new ventures use? ›
Startups are usually equity financed/funded by way of venture capital/ private equity investors and(or) angel investors.
What is financing a business venture? ›
Typically, financing a new venture employs a combination of debt and equity financing. Debt is presumed to be lower-risk capital because it is repaid according to a set schedule of principal and interest. Debt financing involves an interest-bearing instrument usually called a loan.
What are the financing patterns of venture capital? ›
Venture capital financing is a type of funding by venture capital. It is private equity capital that can be provided at various stages or funding rounds. Common funding rounds include early-stage seed funding in high-potential, growth companies (startup companies) and growth funding (also referred to as series A).
What are the methods of new venture valuation? ›
The various methods through which the value of a startup is determined include the Berkus approach, cost-to-duplicate approach, future valuation method, the market multiple approach, the risk factor summation approach, and discounted cash flow (DCF) method.
What are the mode of venture financing? ›
Venture capital financing is a high-risk, high return investment methodology in which the money is invested in the form of equity in a company that is privately held, i.e., not publicly traded on a stock exchange, and is planned for three broad stages of the company – idea, expansion, and exit stage.
