When it comes to funding your startup, there are a wide variety of options available, from using money out of your own pocket to applying for a loan. To help determine which funding option makes the most sense for your situation, here’s a look at eight potential avenues for finding backing:
- Traditional bank loans: The majority of entrepreneurs turn to banks to fund their business. If you plan to apply for a bank loan, be sure to have a clear outline as to how the money will be spent, since many banks will want to see a strong business plan before they approve a loan.
- Small Business Administration (SBA) funding: The SBA offers flexible loans through banks and other lending institutions to businesses that qualify.
- Credit cards: Nearly half of all businesses are funded, at least initially, with credit cards. And while this could be a good option if you want to move quickly, it can prove unwise if you start mixing your business and personal expenses.
- Self-funding: This requires dipping into your own assets to fund your business. You could refinance your home or borrow money from your savings, investment portfolio, or retirement fund. Keep in mind that there may be penalties or fees given to those who make early withdrawals from certain retirement funds.
- Family and friends: If your family or friends offer up their funds, be sure to have them sign a contract, determine whether it is a loan or investment, and maintain consistent communication with them. Whether as a loan or investment, they should also recognize that there is financial risk that could cause the loss of some or all of their funds.
- Crowd funding: A new and emerging way of funding startups, crowd funding occurs when a large group of people donate money in an effort to take a business idea to the next level.
- Venture capitalists: This is a funding source in which wealthy investors, investment banks, and other financial institutions invest in a business or idea they believe has long-term potential, in exchange for a percentage of ownership of the company.
- Angel investors: These are typically wealthy individuals who provide funding for a startup because they’re looking for a high return on investment. Unlike venture capitalists, angel investors may use their own money to fund startups they consider to be potentially profitable.
Diligent research and planning will help you determine which avenue to pursue when you’re looking to fund your new business.
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Bobbie Gossage, “Charging Ahead.” Inc.com. April 1, 2004.
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