Financing a Small Business

Based on an article How to Finance Your Small Business posted on 7 September 2020, 8:48 pm EDT By Staff Reporter Tech Times

Now you finally get your small business off the ground. How are you going to fund your business idea? There are lots of different ways in which you can finance your small business nowadays.

Consider that some small business financing ideas are safer than others. No matter what your background, any small business should only take small amounts of funding to get off the ground. If you are passionate about starting, then you can earn extra money or reshuffle your finances.

Savings

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If you have saved already well done. You have the platform for your business to launch. Otherwise, if you do not have any money saved, then can postpone your start. You can work for another 6-12 months, putting all the money you can to one side and preparing to launch your business. This has the advantage of giving you an opportunity for planning.

If you find it difficult to part with your savings, as you are risking them too. As you know many small businesses fail and you might end up with very little or even nothing left. The potential upside is the whole reason you are starting a business.

Your savings are a great basis for starting a business because it is your hard-earned money. You will think twice about investing your own money if you don’t feel that you are onto something successful.

Angel Investors

An angel investor is someone you can pitch your idea to, and that might give you some money in return for part ownership of your small business. You can try this whether your business is new or you already have some track record.

An angel investor does not have to be a millionaire. Think of someone local who has a lot of different businesses, or owns a business. They are likely to have an entrepreneurial spirit and could be an excellent place to start.

Look for an angel investor within your family. Friends and acquaintances are another good place to start when you are looking for financing for your small business. These can take on the role of angel investors.

You can reward them with a percentage of the business or you can promise to pay them back their initial investment. Friends and family are easier to persuade than strangers, just be sure to remember you must repay them as agreed.

Crowdfunding

This is a method whereby you reward people in different ways for adding some money to your pot. You set a goal for how much you would wish to raise and people can chip in an amount towards this goal. It is more appealing for some people who want to help but can’t justify large amounts of money. You can give away equity in your business in return for your crowdfunding, too, but this depends on what you will give away.

Borrowing Money

This is still one of the most popular ways in which to start a business and avoid this as much as possible. Most businesses think about borrowing money at some point. Doing the right thing the WRONG way can turn your dream into a nightmare. Borrowing money drastically increases RISK. What you must do as a leader:

  • pay cash
  • Rent not buy
  • Outsource work you cannot do
  • Often buy used.

As a business owner you should work for:

  • Having retained earnings set aside.
  • Run a DEBT-FREE business.

Your Action

  • Create a budget.
  • Set aside one month of retained earnings to cover expenses.
  • Put 80% of profits to eliminate debt.
  • Put 20% of profits to three to six months of retained earnings.
  • Once debt free put remaining profits to three to six months retained earnings.

If you must borrow then look for the cheapest and safest way. Many Government-backed lending schemes or state schemes can help with low interest rates and other benefits. The U.S. Small Business Administration has several lending schemes to help to get small businesses off the ground.

NEVER start a business using credit card debt. Although this is possible, it definitely is not wise. You should try to secure a sensible loan that you know you can pay back in time.

Conclusion

A combination of the methods above could finance a small business idea. You should consider the business in question and whether you know anyone with the financial means to help. Your last stop would be a bank. Before you take this course look at all the other options and schemes for those who need to do so.

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