Getting a new business of any size off the ground is no easy thing. While some are virtual, others require physical premises and employees. Either way, it’s necessary to look to where the money will come from because there will be a lot of upfront spending in the first few months with scant opportunities to receive many sales until things begin to pick up.
Here are 4 ways to fund a new business.
Borrow the Money from a Lender
Borrowing substantial sums from a lender is usually the first port of call.
When you have expensive equipment to purchase, the risk is that it will drain all of your available funds or even be unaffordable. So, this is commonly where the idea of equipment finance will first get mentioned.
For example, if you need to purchase a truck using a loan, then try out a truck loans calculator to get an idea of what it will cost. You can then factor in how the truck will be profitably used to justify taking out the loan to purchase it.
Seek Investment from Angel Investors
Angel investors are just a fancy term for independent people of means. Quite often, they’ve received a family inheritance and are looking for places to invest in. Or they’ve sold a successful business and are in the same predicament.
If they’ve run a business before, they will feel comfortable investing in private companies. Perhaps more so than public companies where they don’t feel they have any control over the outcome of the business or its eventual valuation.
However, bear in mind that you’ll be giving up a big piece of the eventual upside to receive investment from an angel investor. How much that will cost you depends on the size of the business in the end. It could even deprive you of the ability to retire if the investor has a sizable chunk of shares. So, consider these factors first.
Ask Friends or Family for Assistance
Friends and family are frequently where people go when seeking small sums. However, there are a few wrinkles with this one too.
Firstly, the amounts are likely to be small and not that valuable unless you’re starting a virtual business with few expenses.
Secondly, should the business fail, you’ll still be expected to repay them.
Thirdly, it will undoubtedly dominate conversations and be a focus of attention, which you may dislike.
Ultimately, should the business fail, there will be sour grapes with the people closest to you. It won’t be a fun time.
Get a Partner
Another approach is to get a business partner.
A partner will either be “the money” or they’ll bring expertise and you’ll both bring some startup capital to the business.
Having a partner is a tricky one. It can lead to disagreements on the direction of the business, where money is being invested, and more. You’re not in control of the business because it’s only partially yours. Also, any upside will be shared, so the payout on a flip would be considerably less.
For entrepreneurs, each path to funding has pros and cons. Borrowing with a loan is usually the least problematic option, especially when it’s secured against something of value.
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