March 1, 2017
Most successful start-ups have one secret; they relied on more than a single source of funding during their initial stages. To get your business off the ground, you need more than one source. It helps absorb the financial shock that is associated with start-ups. Depending on your choice of start-up, there exist three common ways of funding upcoming businesses:
- Using one’s own money or assets;
- Borrowing capital;
- Raising funds from other parties including friends and relatives.
Using personal assets to finance business exploits at the initial stages has proven to be the fastest, easiest and most reliable method of getting your project rolling. You are in full control of the capital and you can do the allocation as you deem fit.
One of the most common ways of using assets in financing a start-up is through ROBS. This simply stands for Roll Over as Business Start-ups. This comes with the option of investing one’s retirement funds directly from the benefits account without the looming risk of income taxes or withdrawal charges. Worth noting, this is not a form of cashing out the retirement account or even taking a loan against the account. It is advisable to consult your financial adviser before considering this option.
The other obvious alternative is using equity in your home. For homeowners with equity in their homes, it is easy to access low-rate home equity loans or a home equity line of credit and use the money to fund a new business. A home equity loan comes as a lump sum while the other option can be withdrawn in instalments depending on your needs. If you need a huge amount of money to cater for the initial expenses, the former would be most appropriate option.
However, this option does not come without its own fair share of risks. The most obvious one is that you will be risking your life savings that you have sacrificed for for several years. When you risk your assets to bankroll a start-up, you will be reducing the value of assets you might have otherwise used as collateral when seeking loans from other sources.
It is also possible to fund your small business through borrowing. Many successful start-ups have thrived on borrowed money. It takes such a short time if you find a willing and co-operative lender. One can benefit from lending sources in several ways.
For one, you can take out personal loans via P2P sites. Peer-to-Peer sites focus on linking borrowers and investors, both individuals and financial institutions. The loans can be taken for a duration with payment ranging from three to five years. To qualify for such a loan, one needs a great credit score of 650 and above. For those with low credit scores, you can explore other existing avenues like LoanMe, although it charges higher interest rates.
Did you know that you can use your credit card to fund your business in its initial stages? Depending on how much you need, you can take advantage of both personal and business credit cards. For those who use credit cards often, this can be an effective way of funding your small business, taking into consideration reward programs and possible cashbacks. For many credit cards, there is even the option of enjoying promotional introductory rates of zero percent. However, it’s fair to admit that such an option is only worthwhile if you’re looking for funding for a small business venture and not a large start-up that requires substantial amounts of money. Yet again, you will be putting your credit score on the line. Any slight default can be costly to your future borrowing endeavours.
This is yet another way of accessing funds for a business start-up. This option can save you the worry of debt consolidation if you have limited funds. This product is available in best debt consolidation companies. It is restricted to acquiring machineries, vehicles and other equipment that might be necessary for the business. From equipment dealers, to banks and other lending institutions, you have several avenues to explore. When used appropriately, you can set aside initial start-up funds for other needs.
Fundraising the Capital
The last option you have is that of fundraising the money to support your business in its initial stages. Through this method, you can reach out to potential investors who might want a stake in your company based on an agreed formula. The simplest way, of course, is to borrow from friends or close relatives who might have liked your business idea. Unless the people you take money from are sophisticated investors, this a safe way of getting funds for your new business.
Start-ups looking for funding have several options to explore; from conventional loans to fundraising. Simply analyze the risks and then assess the benefits. If possible, consider consulting your personal financial adviser before making any move.
Isabella Rossellini is a professional financial consultant. She has worked with the best debt consolidation companies across the globe. To learn more about debt consolidation reviews, visit this website.