8 tips for securing finance for your small business
When you are starting out with your small business, you require funds to run your business. While you might have savings that you would invest in the business, savings alone may not be able to sustain a business during its early days. While there are many ways to finance your small business, some carry greater risk than others. Below are 8 tips for securing finance for your small business:
- Bank Loans: This may be one of the first ways of securing finance that pops up in your head. While the idea is great and secure, getting a bank loan is not a breeze. You have to first assess your own eligibility for the loan from the criteria available on the bank’s website. If you think you fulfil all the requirements, you must collect all necessary documents and apply for a loan. If you have any confusions, don’t hesitate to sort the same with the bank manager. Be clear about the repayment terms and interest rates. A higher personal credit rating can be useful in securing the loan more easily as well as increasing the loan limit. However, if you do not have prior entrepreneurship experience, getting a bank loan may be tough.
- Crowdfunding: This is a modern method and over the recent years it has gained a lot of popularity. Here you can gain traction through a well packaged product or service which is easily accessible. There are several crowdfunding platforms such as Kickstarter, GoFundMe, IndieGoGo etc. These platforms allow you to pitch your business, set an amount you wish to raise through the crowdfunding in a fixed number of days, and start your campaign. The good thing here is that you can get a lot of people on the internet to fund you with small amounts which can add up. Success here depends upon how well you connect with general public and get them to contribute.
- Investors: When you get people to invest in your business, they are known as equity investors if they get company shares in return. You need to decide the percentage of shares you want to sell. In order to retain ownership of the company you need to have at least 51% shares. Here are a few ways to get investors:
- Invest yourself: If you have sufficient savings, you can be one of the equity investors in your business. By doing this you retain a major share of ownership of your business. Make sure that you do not invest all your savings into the business, save some for emergency situations.
- Angel investors: These investors look for young and growing companies and invest in them. Their expectation is to get 20 to 25% ROI. Getting an angel investor to invest in your business will require some homework on your part in terms of getting a strong business strategy in place.
- Venture capitalists: While there are a lot of venture capitalists out there, getting one to invest requires a strong business plan with a solid break even strategy. Venture capitalists want to recover their investment in a five year period.
- Family and friends: If you and friends or family members share a common interest as far as your business is concerned, you could ask them to invest. This is a great option if you share similar temperaments and have great mutual understanding. However, you have to factor in the fact that mixing relationships with profession can be potentially dangerous.
- Asset financing: Another great way to fund your business is through asset financing. You can get a loan against your assets such as your house, car or gold. However, if you finance against any of these and fail to repay, you will lose the asset to the financing company or bank. This is the risk factor you need to consider before you use this option.
- Preselling: If your product or service is ready for the market, you can sell it even before launching your company. However, the key here is the product or service being “market-ready” or else you risk losing out on brand value even before you launch it.
- Credit cards: This is one of the ways to finance a small business, at least the start up costs involved. However, the interest rates for credit cards can burn your accounts. This is not one of the best options but it is an option when none other is available.
- Grants: If you are looking to start a small business in the fields of social science, science or research, you may be able to get funding through grants. Since grants are industry specific and require you to fulfil certain requirements, it is best to research these requirements and see whether you fit. There are several government and NPO grants and you’ll have to search which ones you can apply for.
So, you now have an idea as to the kind of funding options you have. Some of the best courses for finance professionals available online also cover the topic of procuring finance in great detail. If you wish to build a solid base in finance before you kick off your entrepreneurial journey, you may want to pursue one of these.
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