HOW TO START A BUSINESS 💰 Financing Your First Business/Startup

What are the financing options available to fund your small business or start up? Here are the most common ways that entrepreneurs finance their small businesses or fund their new idea. Having a great idea for a business or a product is only half the battle. Financing your business can be challenging for many entrepreneurs. Even in a good economy, it can be difficult to find financing for your business as an entrepreneur. Here are the tried and tested ways that entrepreneurs have financed their small businesses in the past!

1. Bank Loan

The first option is to apply for a small business loan. You can go to a smaller bank or a larger bank for this. In fact, many larger banks and lenders have funds specifically set aside for small businesses. The rate for your loan and the amount they are willing to lend you will vary based on your history, whether the business is turning a profit and how much of a profit if so. Check with the Small Business Association for special loan programs that may be available.

2. Crowdfunding

Crowdfunding sites allow you to raise money for your project or idea. With this method of funding your business, you set a goal as well as a duration for the campaign. Family, friends and even strangers then pledge you money to back your idea. Crowdfunding works best for individual projects, especially those with a good cause!

3. Credit Card

This is a high risk way to finance your small business. In general, credit cards should be used as a last resort. Interest rates on a credit card will likely be much higher than a loan. Your personal credit is also at risk with this strategy. Credit cards should only be used to get your business out of the occasional jam, if they are used at all. The best strategy is to secure financing outside of using a credit card and then saving this as a backup in case of an emergency.

4. Find an Investor

Pitch your business idea to an investor or an investment club! Make sure you go in prepared for this. Do all of the planning and thinking before the pitch. When finding an investor, be open to negotiation and be decisive! Make sure you are approaching an investor with something you are passionate about, they will have little interest in funding your get rich quick scheme. Know every aspect of your business, your competition and your plans. Even if they aren’t interested at first, keep in touch!

5. Use your 401K

This is another risky way to finance your small business or startup. Due to legal provisions in the tax code, you can tap into your 401K to start a business penalty free. There is a complex process involved in doing this and it is best left up to the professionals. If you can’t get a loan or an investor, this may be your only option. If your business fails, you lose the business as well as a portion of your nest egg.

6. Friends and Family

This is a common strategy to fund your business, however you are risking your financial future as well as your future relationships with this method. The biggest mistake people make in doing this is reaching out before you have a formal business plan. Your friends and family are not a charity. Supply formal financial projections and evidence based assessment of when they will see their money again. Let your investors know you take their money seriously. Be honest about the risk involved with the investment. Also, decide whether you are offering equity or looking for a loan.

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