Top Sources of Capital for Business Owners
Traditional and creative options to access the funding you need
Many of us are endowed with great business ideas. However, the rate of implementing those ideas is very low due to lack of capital. It is why many people die with ideas that, if they were implemented, would have transformed the world into a better place. As an entrepreneur, you need to try and push yourself to the limit to make your ideas reality.
Nowadays, banks have become so conservative with their cash. There are so many things taken into consideration before any business loan is approved. It means that entrepreneurs need to think outside the box and determine alternative and creative financing options for their businesses. With Internet and technology, it is time to put them to use when it comes to raising capital, rather than relying only on the traditional sources that have been there forever.
Today, we would like to take you through different ways businesses or entrepreneurs can raise capital. Not every source of capital is applicable to every business idea, though. An entrepreneur should choose one which fully meets their demands. Here is a breakdown of traditional and creative sources of capital you may use to start up your company.
Friends and Family
If your business is well thought out and has a proper business plan, your family members together with your friends are the closest people to approach when it comes to raising capital for your business. Your communication skills should save you at this point. The good thing with cash from friends as well as family members is that it comes with very low-interest rates or none at all. It makes it cheap for you when running the business since you would not be required to pay interest rates on loans.
However, be careful when choosing the members since some of them might want a majority share of your company.
Selling of Assets
When starting off a business venture, it is good to consider and use what you have to get what you want. Do you have any assets that you can easily convert into cash? If you have some, the better for you. Just sell them and use the cash to kickstart your business. It is vital to be aware that, in the business world, it is all about risking and nothing else. Sell off all your assets and invest in your business. Doing so is cheaper than going out for a loan which will automatically come with high interest rates.
If you have a great business idea, it is good to look for an angel investor who will provide capital for you to kick-start your venture without any financial strains. However, you should note that angel investors will have a share of your business and will also be involved in decision making. Furthermore, they also expect a certain value of return on their investment. If indeed you have a proper and well laid out business plan, make your dream a reality by looking for an angel investor. Have proper language and convince them that your business idea is quite profitable.
Stress that all their investment shall come back with great returns.
This is another awesome idea you can use to expand your business in the 21st century. However, this method only applies to companies or businesses that are already beyond the start-up phase and are facing difficulties in running and administration due to financial strain. If your company is in such a phase, you may approach venture capitalists who will inject a certain amount of capital into the business and keep it running instead of closing it down. As a piece of advice, we would like to state that many venture capitalists insist on recovering their cash within a period of three years.
Home Equity Loan
If you have a home equity loan, you may use the loan to finance your business. The good thing with these loans is that they come with flexible terms and low-interest rates compared to traditional loans. However, caution should be taken since, if the business fails or you somehow don’t follow the terms and conditions of the loan, you risk foreclosure.
Renting Your Home
In the business world, it is always good to risk what you have to get to where you want to be. The best example is renting your apartment and using the rent to start up your business. It is a very creative way many people across the US have used to get into entrepreneurship. There is absolutely no need for you to live in a ten bedroom house when you can fit in a three bedroom house! Rent the 10 bedroom house and use the cash to start your business.
With a proper business plan, which has objectives and is commercially based, different financial institutions will be willing to give out small business loans to you. There are two types of business loans: the secured loans and the unsecured loans. The secured loans have collateral, meaning that if you fail in repaying them, your assets might be taken away by the bank. On the other hand, the unsecured loans have no security attached to them. What may limit you in both cases is if your personal FICO score is low.
Merchant Cash Advance
If you plan to use credit and debit cards for your business, one good source of capital could be a merchant cash advance. It is a loan given to businesses against their future credit and debit card sales. The advantage of merchant cash advance is that the lender collects a certain percentage of the credit and debit card sales, meaning that if the sales are low, he will take a low amount and if the sales are high, he will take a higher percentage. Also, it does not come with interest rates since it is not considered a form of loan.
It is sometimes referred to as invoice advances. This is a process whereby an entrepreneur agrees with the moneylender to grant them the money against future payment of invoices by the customers. The good thing about this type of agreement, unlike loans, is that no interest rates are charged by the lender. Isn’t this a better way to finance your business compared to going for a loan from the bank? Definitely, it is. However, it is good to note that if your clients fail to pay their invoices on time, you could end up losing the service provider.
Many companies nowadays borrow money on their personal and business credit cards so as to finance their businesses. It is due to the fact that they are cheaper and faster than merchant cash advances as well as invoice factoring. When using this method, however, you should be careful not to default in payments since the interest rates and cost on the cards build up very quickly.
The Internet is slowly taking over the entrepreneurial world by storm. Online lending services like Kabbage and Ondeck are now growing and becoming very popular compared to traditional business loans from banks as well as microfinance institutions. It is because they are fast and reliable. The timing of the loan takes less than a day! If you have a business idea, don’t hesitate, just apply for money from online lenders and kickstart your venture in no time.
The government, especially the small business administration, offers grants to entrepreneurs who want to have research-related business ideas. However, your topic of concern should be related to a problem-solving activity. The idea should also have high commercialization potential for you to get funded. The good thing about grants is that they are absolutely free and you don't need to repay anything back to the government. The good thing about grants is that they are absolutely free and you don't need to repay anything back to the government.
It is where you use the Internet to market your business idea. Sites such as kickstarter and indiegogo provide a platform for you to market your idea. Interested individuals will donate amounts to raise capital for you, though with strings attached. The rules are not monetary in nature but may include things like making sure that they are the first ones to enjoy the product or service in the market. It is one of the best methods you can use to raise capital for your business, compared to a bank loan, which requires you to pay the interest rates.
My assumption is that most of us have heard about bartering. It is a form of trade whereby we exchange goods for other goods. It means no money or cash is involved in the transactions. In this case, however, you could have business ideas that need machinery. If you meet someone who has the machine that you need, you could convince them to give the equipment in exchange for different things. It will save you the total amount of cash needed to start up your business.
Peer to Peer Lending
The Internet has provided unlimited platforms for those who want to raise capital for their businesses. We have sites such as prosper and lending club who pair people who need loans with people who are willing to extend the loans to them at an interest rate. All you need is to register on those sites and specify the size of your business and the amount of loan you need. The intermediary will check your credit report and disclose the information to different lenders. The lenders will bid on your loan.
Lastly, the intermediary shall choose the lender with the lowest interest rate and help you find the loan you want to start up your business.
Since getting loans from banks has become an uphill task to many due to many rules, it is time for entrepreneurs to start applying for microloans in nongovernmental organizations, as well as government agencies such as the US Small Business Administration. These loans have limits and the maximum could be $50,000 USD. What makes these loans worth trying out is that they come with very low interest rates compared to loans from banks.
As stated before, the Internet has completely taken over the world. Thus, many entrepreneurs should work hard and benefit from this since it is faster and cheaper. What you need is to submit your loan application online and then let the lenders review your application within a day. Most of the time, your credit history will be taken into consideration. Once the loan is approved, it will be electronically deposited into your bank account the next day. The loan shall be rapid via electronic deductions on your business daily transactions.
The interest rates charged on these loans, however, are not as high as those on traditional loans or lines of credit.
Finance companies are also options you can use to get capital for your business. These companies are there to give small loans to small business owners. However, these companies do offer loans at high interest rates. Thus, it is good to be very careful when signing contracts with such companies. To make it even worse, they are loosely regulated.
In the world that we live in today, getting access to funding for your business requires you to look beyond the traditional sources people used to depend on in the past. It means that the level of your creativity needs to edge out the rest of the individuals. It is what differentiates successful and unsuccessful people in life. If you have business ideas that you think, when implemented, will take over the world, don't sit on it. Try and work hard by using the above creative financing options to generate enough money so you can establish a strong business empire.
Utilize the above traditional and creative ways to raise money and start your business venture. However, choose the most appropriate method that fully meets your needs.