People choose to start their own businesses for so many reasons. But as a young entrepreneur, how can you actually raise funds to finance your business?
People go into entrepreneurship for such reasons as being tired of working for someone else. Others maybe like the idea of the freedom that being self-employed can bring.
However, you have to be aware that going into entrepreneurship is not as easy as you may think. In fact, it requires a lot of effort than working for someone else.
Raising funds to finance your business
Also, it may be for financial reasons, or because they know they have a great idea that they can build a business on.
Whatever the reason, it is always going to be easier to start that business if there is some money behind it, to begin with.
Therefore, knowing how you are going to finance your business is an important piece of information that you will need to get started. Here are some different ways to do it.
#1]. Personal Savings
Perhaps the easiest way to put money into a new business is to use money that you already have. This could be from savings, for example.
Mind you, it may not sound like a good idea to invest all of your savings into your startup. This is why many people look for alternative means to raise money to finance their business ideas. However, if your business is going to be a success then it can actually help you to make money.
The money that you put into your business should be paid back to you, and ideally with interest, once the company is making money. The only issue with using your savings is that once it is all used up, you will need to look at another financing if you need any more.
However, since using your savings means that your business won’t find itself in any debt right from the start, this can make it more appealing to lenders or investors when you need them later on for expansion and growth reasons.
#2]. Borrow From Friends And Family
If you don’t have savings of your own and your credit isn’t as good as it could be, then borrowing from friends and family might be an option to help you finance your business.
Rather than simply asking for the money and promising to pay it back, however, you should create a contract so that everyone knows where they stand.
The lender may want some form of an equity stake in your business (and would, therefore, be an investor), or they may want to have their money back with interest. The terms and conditions should be worked out before any money exchanges hands.
Also, the contract will make sure that everyone is happy with what will happen, the interest charged (if any), and the monthly repayments or payment plan in general.
#3]. Angel Investment
An angel investor is someone who puts their private money into a business in order for it to grow. As the business becomes bigger and makes more profit, the angel investor will be able to have their money back with a good return.
In most cases, angel investors usually end up having more money returned to them than they put in. They will also want to own a share of the company, and this could be a great thing for your business.
The fact is that having someone with plenty of business expertise on board is good for the business.
Angel investors can offer help to grow your business more quickly and successfully than you could have done on your own. Therefore, even though you are ‘giving away’ a piece of your company, you are making more money.
#4]. Credit Cards
If your business isn’t going to cost many hundreds of thousands of dollars to set up, it may be possible to finance it – at least at the start – with a credit card.
Nowadays, banks and other financial institutions offer business credit cards which can be a source of emergency funds.
For instance, you can use credit cards to pay suppliers so that you can buy stock, ready to sell at a later date. Of course, a credit card should always be looked at as a short-term solution, especially if it is a personal one (you don’t want to affect your credit score in any way).
Ideally, you will want to use a card with a low-interest rate or great introductory offers, so check out Bonsai Finance for the best ones that would be suitable for you.
#5]. A Business Loan
Getting a business loan might be the first thing you think of when it comes to working out how to finance your business. A loan can be ideal, as the interest rate won’t be as high as some other methods of borrowing.
Also, the time taken to pay the money back can often be amended as you go along, depending on your personal and business situation. In order to obtain a loan from a bank or other lender, you will need a well thought out and accurate business plan.
This will need to include as much financial information as possible, such as what kind of growth you envisage for the company, what you will need to spend on marketing and equipment, and how you intend to pay back any money borrowed.
If the business plan makes sense and you can prove that you are able to pay the money back, then a lender may well look favourably on you. The business plan will be of use even if it doesn’t persuade a lender or investor to give you the money you need.
It can be a roadmap of where to go in your business, ensuring that you stay on track and continue to grow rather than finding you are distracted or making a decision that just doesn’t fit with the rest of the business.
Something that is gaining in popularity is crowdfunding, and it can be the ideal way to find the money to start your business.
A business owner is able to choose the right crowdfunding site for their business (there are many, some of them generalised and some more specialised), and then create a crowdfunding campaign that will persuade people to invest.
To begin with, you will need to know how much money you require, and give the campaign a timeframe. Incentives can also be offered so that everyone who funds your project will receive something in return.
What this is and how it is done will depend on the platform you have chosen to use and what kind of business you have.