Startups have seen a boom in the last couple of years. People are leaving their well-cushioned jobs and taking a plunge into this unpredictable territory. The new business environment has given them confidence and they are willing to take risks.
Every year around 500,000 new businesses starts in America. However, only about 56% of them continue up to their fifth year of existence. One of the major reasons behind the sinking of businesses is the lack of financing. If you are in a similar situation, you can explore the following avenues for financing your business.
The very first step is to assess if your finances can sort your situation. If your business is small, tap into your own savings. You can dip into your family’s inheritance or some savings lying in an old bank account. Another option is to sell your assets like real estate, stocks or bonds. It is advisable to study the tax implications if you choose to follow this path. There are chances that your capital gains could lead to an enormous amount of tax and deplete your income. One more option is to take a loan against your home. However, there are tight restrictions on Home Equity Lines of Credit that may give you a lot less than you need. If you do not have a house to your name, you can apply for a loan with a co-signer. This person needs to have a good credit score and should agree to take the liability in case your business goes kaput.
Family and friends
This is a popular way of financing businesses and several business owners resort to this. It is easier to convince people who know you as compared to an unknown bank official. Secondly, you can avoid high-interest rates or strict repayment rules if you can arrange your funds from the people who know you. However, I would like to warn you that nothing can sour relationships like money can do.
Small Business Administration Loans
SBA does not directly offer loans but can give you a guaranty to avail loans from banks, credit unions or nonprofit organizations. It has a variety of programs like the 7(a) Loan Program and SBA Express Program. You can apply for 7(a) loans if you want funds to launch a new business or expand an existing business. The interest rates for these loans are generally low which is its biggest advantage. However, there are a few guidelines and restrictions on the maximum amount of loans. It is suggested to read them in detail before you proceed with them.
VC firms provide funding in exchange for equity stakes. They generally invest in businesses that have shown some promise in the start and are now in the expansion stage. Hence, they are quite selective and you may have to go through a long process of presenting your ideas and assure sustained business growth.
These are well-off individuals who are willing to fund small businesses. Generally, these people are quite experienced in a specific industry. They understand the potential that a business may have in that industry. They provide funding in exchange for equity stakes. Additionally, some of them also agree to provide guidance for a successful business outcome. These people may be low-profile and finding them could be a challenge. You can ask around or talk to other business owners to identify them.
This is an unconventional way to arrange funds for your business. There are several crowdfunding platforms that you can tie up with, for your needs. These platforms advertise your requirement to people who can pledge small amounts to help you reach your goal. However, if the goal is not achieved, all the money goes back to the donors. The platforms also have a small cut in exchange for promoting you.
You can explore any of these options depending upon the available resources. If your business has a strong base, you can easily get funding and chase your dreams.