There’s a certain allure to being your own boss. The promise of flexible hours, creating an income with no foreseeable caps, and having an impact on the community or industry are all reasonable draws to starting a business. However, most startups remain in the dream phase due to one common, difficult hurdle: financing. Funding a startup is a challenge because few individuals have the necessary cash lying around to pay for the initial costs, especially when a physical location is necessary to operate the business. Getting a conventional loan from a bank isn’t easy these days when you don’t have a strong track record of profit to show. Fortunately, there are several practical ways to fund your startup that can help you move your business from dream to reality.
Crowdfunding has quickly become one of the hottest trends in startup funding, but it only works for certain business models. If you have a product that is likely to garner the attention of a substantial share of the consumer or business market, crowdfunding is a smart way to not only raise awareness about the product but also to secure funding from a crowd of smaller investors through platforms like Kickstarter and Indiegogo. Once your startup has enough funding to take the product to market fully, additional funding through more traditional sources can be used to grow the business. However, crowdfunding takes work, as there is a need for ongoing marketing of your campaign.
It is possible to borrow startup funding from friends and family, and it can be a smart solution when other outlets aren’t readily available. Borrowing from friends or family members allows you to structure the loan in a way which suits you – and the friend of family member – best, not to mention the fact that there is no stringent loan underwriting to go through. In most cases, friends and family members want little involvement in the actual operation of the business, but they are willing to help you achieve success in the business through funding. Be mindful that if the startup fails to launch and you are unable to repay the loan, you risk losing a relationship.
Nearly all startup owners have tapped into their personal assets to get the business off the ground. In fact, securing a business loan or line of credit later in the business life-cycle is easier when founder capital is contributed to the mix early on. If you don’t have money simply lying around in a savings or checking account, think about other places assets may be hiding in plain sight. Cash value of a life insurance policy, an old retirement account, or a home equity loan or line of credit can all help fund your business endeavors. Remember, though; you should aim to strike a balance between using your personal assets and outside funding solutions, so you are not completely tapped out if the business falters.
While a business loan may not be a viable option to fund startup costs, a personal loan based on your credit score and history may be an alternative. Conventional banks are not likely to lend money to beginner businesses because of the level of risk involved in the transaction; however, personal loans may be used in lieu of business loans, especially when you have collateral to pledge or a strong credit profile. You can search online for alternative lenders, or head to your local bank or credit union to see what they have to offer regarding interest rates, repayment terms, and credit requirements.
Funding your startup may seem like an uphill battle, but you have various, realistic options to get the job done. While not each of these funding mechanisms works perfectly for every entrepreneur, one is likely to be a smart choice for accessing affordable funding for the short or long-term needs of your business.
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