Nowadays, in the economic market that we are in, it is very hard to finance business all by yourself. There comes a time when you need some outside help. But getting that finance can be a lot of trouble. The younger your business is, the more challenging it is to get a loan for it. This is especially true for startups as they can find that securing funds for their ideas is one of the toughest tasks that they have ever encountered. If you are applying for a business loan from an outside lending party, then you might have better luck than if you were applying at a traditional institute like a bank. But even then, it takes time and a lot of convincing.
That is the reason why we have compiled a list of 10 ways that you can find the financing that you need for your business.
1. Think about Factoring
A lot of businesses might have bad credit, or they are having problems like late payments such as the manufacturing industry. Businesses in this industry need to have cash in hand so that they can purchase the raw material, but they don’t get paid as soon as they have delivered the products. This can create a gap that can become really troublesome if they don’t have the cash in hand to get more raw material and start manufacturing the next batch. For businesses like these, there is a financial method called factoring that they can use. Basically, what it means is that they sell their receivables at a lower price so that they can get the cash that they need upfront. Although this method is used frequently, it is not a very affordable option to raise money. If you want to use the Factoring method, then you will have to pay a fee that is given as a percentage of the total amount. If you have settled on a percentage of two percent so that you can get the money that you want early, that can be the same as paying a yearly interest rate of 24 percent. This is one of the reasons why a lot of businesses don’t tend to go for this method. But lately, companies that deal in the factoring method are trying their best to make this process more competitive and more affordable for businesses.
2. Get a Bank Loan
One of the most obvious ways that you can get the finances that you need is to go for a traditional bank loan. Although since the market is getting more and more competitive, the bank standards are becoming stricter and stricter. There is a boatload of documentation that you will have to provide the bank like your business’s financial statement as well as your personal financial statement, your credit history, details about assets that you can use for collateral, and other things that make it really hard to get the loan approved. Although there are some banks, who are now earmarking some of their funds for small businesses, so this path is not entirely closed for startups and SMEs.
3. Use a Credit Card
This is one of the riskiest options for you, but if you are really stuck in the mud, then there are options that you can avail of. Just make sure that you don’t fall behind on your payment or your credit score will take a hit that you cannot imagine. Another thing that you have to take care of is that you can’t just pay the minimum amount each month. If you do this, then you will ensure that you are in a great, big hole that you will never be able to get out of. But if you use your credit cards wisely, then you can use this option to handle the occasional cash flow problem that you are having and return the amount as quickly as you can.
4. Tap into Your 401(k)
Most people think that they cannot use their 401(k) that they have accumulated over the years, but there are various ways that you can use it without putting yourself up for a penalty. This is especially so if you ever find yourself unemployed and start thinking about setting up your own business. We are not saying that it is easy or that it is for everyone, but they are achievable. You will have to talk to a consultant as there might be steps involved that you don’t know anything about, and they might get you into trouble. First of all, you will have to set up a C corporation as well as a proper and considerable retirement plan. This is the retirement plan that you will pour your retirement assets into. Just make sure that you know what business you are getting into because if it fails, not only will you lose your capital, you will also lose the retirement amount that you had saved up for a rainy day.
5. Try Crowdfunding
There are various crowdfunding websites online like Kickstarter.com that can help you collect funds for your business. It is actually a fun and efficient way to raise the kind of money that you need, and the best thing is that it doesn’t cost a lot. This method is rapidly gaining a lot of popularity and traction, and more and more people are gravitating towards it. Basically, what happens is that you set a specific amount of money that you want to raise, and you also define the time that you want to raise the money in. For example, let’s say that you want to raise $20,000 in 30 days. Once you have done this, you will ask your family, friends, colleagues, and others to pledge money to your cause. Up till now, Kickstarter has funded more than a thousand projects of varying types. People come to these crowdfunding sites to get the money for their documentaries, music albums, businesses, creating frying pans, watches, and so much more. Just remember that this is a temporary and short term effort and not meant for the long term.
6. Attract an Angel Investor
One of the best ways that you can get the funds that you are looking for without going through the tedious processes that banks make you go through is to find an angel investor. There was a time when getting an angel investor on your side was a piece of cake, but ever since the economic events of the last few years, things have become more and more difficult. Now, you have to make sure that you bring you’re A-game to the meeting. You need to have a kickass business plan for the investor. You have to make sure that you explain your plan succinctly without the use of heavy jargon. You also have to make sure that the investor knows that you know what you are talking about. You have to show that you have the kind of experience to make this thing work. It is better for everyone if there are some people in your team that have a little grey in their hair so that the investor knows that there are battle-tested people that you can rely on. They will check if you are starting your company because you have an exceptional idea or if you are just doing it because entrepreneurship is a trending word that everybody is using these days. To put it simply, any lack of confidence or if you don’t know the details of your business as good as you thought you did, the angel investor will be in the wind.
These are the major 6 ways that you can find the kind of funds that you are looking for and start your own business or grow your existing business.