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Six Best ways to finance a new Business

Six Best ways to finance a new Business
Posted By: Nouman Ali on September 17, 2020

If you are fed up with your 9 to 5 job and want to start your businesses, this could be exciting, but, first of all, you need to be creative if you want to turn your idea into reality.  The first hurdle in your way is the starting capital – but fear not, it is doable!

The members of the Forbes Finance Council has listed several ways on how an entrepreneur can get the initial investment he needs to start a business. There are many ways to finance a new business. A few of them are listed below;

1.     Personal Savings of the Entrepreneur

The first way that comes into the mind of an entrepreneur while planning to start a new business is their savings. Using your savings can be good in many ways; it means drawing money from your funds saves you from going into debt before your business even starts. Debts, if not dealt with care, could end up costing you more trouble than its worth. While on the other side, investing your savings into your new business can be risky too. In case the business does not work well, your invested money is at stake or can also be wasted. Additionally, if you have limited savings, your business might not expand so far.

2.   Ask your Family or Friends

An entrepreneur can consider taking investment from their friends or family if they do not have enough savings. This technique of financing a new business is also good if you want to avoid debt. The pros of asking your known ones to invest in your business are that they may offer you better conditions than a bank or any other credit company. However, if your business is not able to produce handsome cash flows, you may not be able to return the borrowed money, which can put a strain on your relationship.

3.   Use Credit Cards

If an entrepreneur does not have enough savings, nor someone to lend them money, credit cards are the next best choice. Credit cards provide advance money to a person, which can be paid later with some interest added.

People usually confuse a personal credit card with business credit cards, but there is a difference. If you want to finance your new business, first understand the difference. Some people also use a personal credit card for business expenses, but it can get messy when it comes to accounting and filing business taxes.

With a credit card, you can instantly get investment for your business, but the rate and the Annual Percentage Rate, which you have to pay later while returning the amount is better than a personal credit card.

When you put a request for your business credit card, don’t forget to look closely at these points;

  • Annual Percentage Rate for transfer of purchases and balance

  • Yearly fees

  • Gratuity programs

  • Perks of credit card that includes travel or shopping benefits

4.   Contact an Angel Investor

Obtaining money from an angel investor or venture capitalist is another good option.

With angel investors, the entrepreneur agrees to trade-off. It means the business owner gives up some of their ownership and the authority of control in their business in return for the investment. In other words, you are offering an equity stake in the business. The main advantage of angel investment is that it doesn’t have to be paid back; instead, the investor becomes a partner in the revenues the business will earn when it’s up and running.

5.    Apply for a Business Loans

A business loan is another good option to finance a new business. A person who intends to start a business can choose from so many different options. These are

  • Short-term loans

  • Long-term loans

  • Loans for development

  • Financing for equipment/machinery

On the flip side, the process of getting business loans can be difficult.

6.   Business Line of Credit

A business line of credit works entirely in a different way. When a person gets a loan, he takes a lump sum of money that is used as an initial investment of the business. The loan is then repaid according to the repayment schedule set by the lender.  While in the business line of credit is a spinning credit just like a credit card. Money can be on the credit line as needed to make purchases for the business, then repay those amounts. With each monthly repayment against the balance, a person can again take a loan. Experts say that the business line of credit offers more ease when financing a new business. It also permits to pay interest on the portion of the credit line used.

Our Verdict

Starting a new business needs investment. Running your own business is exciting and lets you be your boss, but the initial investment can be a major hurdle for many.

  • Personal savings is the best option if you intend to start your business, but it can be risky too. Your amount is on stake.

  • You can ask your friends or family. But in case the business fails and you are unable to return the money, your relationships can be damaged.

  • Getting credit from a bank gives you the investment that you need instantly; however, if your business does not flourish accordingly, you can be in hot waters.

  • Borrowing money from an Angel investor is another good way to finance your small business. It is safe, but you have to share ownership and authority.

  • The business line of credit offers more ease when financing a new business. It also permits to pay interest on the portion of the credit line used.

There are various kinds of business loans that you can get for your startup. Any type of business, whether big or small, requires some startup capital. Whether you are opening a software house in your spare room or a carpet cleaning Hertfordshire company from your garage, you will require money. The financing methods mentioned above are some sure-fire ways of getting cash for your business.

Do let us know which way of financing a new business is safer, in your opinion?


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