Choosing to start your own business is never an easy decision. There are many factors you need to take into consideration. Do you have any experience running a business? Do you have an idea for a product or service which will do well on the market? Do you know how to research the market? What are your plans for marketing the company? Will you need partners? And last but certainly not least, how much money will you need to turn this goal into a reality and where can you get it?
This article will focus on the financial aspect of starting a company. Having a business plan is crucial as it will allow you to understand how much money running a business requires and where most of your money will be invested. Not only will you need to take care of developing a product or service, but you will also have to think about your premises, bills, taxes, and salaries among other things.
A lot of the time, it happens that we need a loan to get the business off the ground. Luckily, there are plenty of options to choose from, you just need to select the right one. Take a look below.
Turn to friends and family
One of the most common paths entrepreneurs take is turning to their friends and family for some extra funds. It often happens that people save up enough money to start a business, they just need some additional funds to keep it running in the beginning.
Choosing this option is often great as people close to you know you and know whether you are reliable and trustworthy enough to invest in you. They are usually willing to give you low-interest rates if any at all. Furthermore, they are typically more lenient and give you more time to pay them back.
However, one thing that you have to keep in mind is that this can really affect your relationship. For instance, if you don’t repay them on time, that can cause a row between you. On the other hand, sometimes, people feel like they get a say in how you run your business and you get tired of them meddling. To prevent most of these issues, make sure you draft a contract which clearly states how much money you borrowed, how much time you have to repay it and that they have no control over your business. This is the best way to protect your relationship and business.
Look for venture capitalists
In case you don’t want to put your relationships in danger or the people in your life don’t have money to loan you, you can look into venture capital options. Venture capitalists take interest in your business and are willing to work with you to make it a success. Before you opt for this approach, you need to understand the pros and cons.
If you manage to find someone interested in helping you, chances are that you will get a lot of capital. This usually depends on the type of business you plan on running but they are willing to invest big money in high-tech companies, for example, seeing as how they can bring a lot of profit. Furthermore, the money venture capitalists put into your business will be repaid through the company’s success and not out of your pocket. In addition, you can also use their connections and expertise to your advantage.
On the other hand, to experience all of these benefits, it’s important to find a reliable and responsible venture capitalist firm. Seeing as how venture capitalists often like to participate in the decision-making process, you might lose some control over your business. That is okay if they are willing to work with you. However, some of them are not willing to provide you with guidance which can affect the success of your company while others keep demanding more and more control and equity until your business is depleted. Most importantly, you need discipline as you do not want to spend all of the capital right away on some unnecessary items such as extra purchases and salary bonuses. Stick to your long-term plan as expanding before you are ready can lead to a collapse.
Opt for peer-to-peer lending
One option that is becoming more and more popular is peer-to-peer lending or P2P. This is a great alternative if you do not want to deal with traditional institutions. In order to make an informed decision, though, you should first understand what P2P is all about and whether it is the right choice for you.
How does this work, you might be wondering? Well, you usually need to join an online platform which then connects you with a lender that matches your requirements. This basically works like a personal loan but the process of obtaining it is much quicker than if you were to turn to a bank. If your application is approved, your loan might be processed within two weeks. There is also less paperwork. So, if your credit history is in good shape, getting a low-interest cash advance should be no problem. However, poor credit history is also not an issue as the likelihood of denial is quite low – it just means you’ll have a bit higher interest rates.
When choosing this option, it’s important to find a trustworthy and reliable platform as this is still a relatively new model of financing. Keep in mind that you will not have a relationship with your lender as you would if you were to borrow from a bank.
Research government grants
People are usually not aware of all the grants the government offers. Aspiring entrepreneurs can often find help from the government as it is willing to finance individuals and companies that can improve the local economy. If your business can create new jobs, the government will also benefit as the number of taxpayers will increase.
The great thing about government grants is that they usually have much better conditions than independent lenders. This is due to the fact that they will also benefit from your company. Moreover, you will not have to repay the money or surrender any equity. Additionally, getting a coveted grant can boost your company’s reputation.
What you need to understand, though, is that getting approved for a government grant is often a long process and you need to see whether you are eligible. For instance, they focus on certain industries, so you need to do some research in order to find out if you can apply in the first place. The competition is fierce as thousands of companies are trying to get funded. Plus, keep in mind that they might have some requirements, such as how many people you will need to hire, even if that is not the best thing for your business.
Turn to credit unions
Another option you have is going to a credit union and applying for a loan with them. Credit unions are non-profits and customer-owned. You need to apply and qualify for membership and being a part of a company, community, school or even a church can help you become a member. But even if you are not part of any of these groups, you can still get a membership.
Credit unions usually have lower fees than banks and take pride in their customer service. Plus, customers are overall more satisfied with credit unions than with banks.
However, your credit history plays a role here and it can result in interest rates that are higher than those in banks. Moreover, they are usually not as up to date when it comes to technology so they don’t use apps that can make the whole process easier.
Opt for a bank loan
Finally, you can choose another path that is more traditional – bank loans. While similar to credit unions, there are some differences which you should be aware of before you make your decision, so take a look.
First of all, banks don’t require membership. This makes the process simpler. Plus, there are many banks to choose from, which means more branches and easier access. They also adopt technological advancements quicker, which is great if you rely on mobile banking. While your credit score is important for getting approved, your interest rates can be lower compared to credit unions.
The downsides are that some fees are higher when it comes to banks. Furthermore, their service can often seem impersonal and robotic. However, have in mind that that is due to their uniform training practices.
If you’ve decided to start a business of your own, it is good to know that you have plenty of options when it comes to financing. If you can’t pay for everything yourself, you can turn to friends and family. Alternatively, there is a wide variety of other approaches, from online lenders to traditional ones such as credit unions and banks. Whichever path you choose, make sure you make the most of the money and ensure that your payments are on time. Good luck with your business!
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