As clichéd as it might sound; it does take money to make money. Granted, there are a number of different ways to go into business with minimal cash, but you’re going to need capital at some point, regardless of your approach. With this in mind, it’s useful to understand how to get financing for a small business.
First Things First — How Much Will You Need
One of the key benefits of drafting a business plan is it helps you figure out how much money you’re going to need to start the business, as well as run it and grow it. This, of course will vary, depending upon the nature of your dealings, the types of products or services you will provide and whether you will manufacture them yourself or buy from a wholesaler. Will you need to ship it? Will you need to store it? How many people are you going to need to help you operate efficiently? All of these determinations will help you figure out the amount money you’re going to need.
Is Self-Funding an Option?
This might be more possible than you realize. Do you have savings or a retirement fund? How about equity in your home? The advantage of going this route is the only debt you’ll owe is to yourself. This means you have complete control over your dealings. On the other hand, you’ll also carry all the risk, whichcan be of particular concern when you tap into retirement funds or your home’s equity.
Venture Capital/Angel Investors
This can be an option if you’re operating in a niche with the potential for exponential growth over a period of five to seven years. To interest these people, you’ll need to be in something that looks like a slam-dunk. You’ll be asked to surrender equity in your company in exchange for the financial assistance. You’ll need to find an investor, present a business plan, pass a review process, agree upon the terms of the deal and accept oversight.
While investor-like, these people aren’t really investors per se, as much as they are people who get what you’re trying to do and are willing to help you finance a small business. In many cases, these people will pre-order your product, or service and you’ll deliver once development is complete.
You can provide other perks where appropriate, such as an opportunity to visit your facility and be afforded royal treatment. Some people are happy just to have their name associated with something that does some good in the world. It’s a good idea to research crowdfunding platforms to determine what will be required.
Bank/Credit Union Loans
You’ll need to present a business plan as well as projected profit and loss statements demonstrating the businesses’ ability to make the payments on the loan. The advantage here is it will make you figure out exactly how much you’re going to need and determine if your concept can deliver in that regard. You’ll also maintain complete control over your business.
These are the four most common paths when it comes to how to get financing for a small business. Before you avail yourself of any of them, it’s important to figure out what you need. Will you need a long term deal; do you need the money fast, what are your most pressing financial needs? This will help you determine the best way to go.