How to Finance a Business

business-people-handshakeFinancing a business is something that a lot of small business owners struggle with, for good reason too. Businesses can be quite expensive, and if they aren’t making enough on their own, owners need to dig into their other options to keep it running. Here are 9 ways that you can finance your business.

 

  1. Use Crowdfunding

Crowdfunding is becoming a more and more popular strategy that business owners are starting to tap into. It’s almost like free money if you have a good business idea that people like. More creative ideas get more publicity than not-so-creative ideas, simply because people like new things. You may not get that much money from these sites, but they do give creative ideas a kickstart to success.

  1. Use Family and Friends

Family and friends are great sources of income, if used properly. Obviously you don’t want to be the person that is constantly asking for money or want to damage friendships because of taking loans. Fortunately, most people know that when “loaning” to a family member, you shouldn’t expect to get that money back. Family and friends should support your business, as long as they don’t have to hurt their income too badly to support you.

  1. Use Credit Cards

Using credit cards to finance a business is one of the better methods of funding a business. Credit cards not only offer cash back programs, but some also offer business credit cards, specifically designed for small businesses. There is some risk when using a credit card and that is accumulating debt. Debt is something that people spend their whole lives trying to get out of, and some people even pass it onto their children. Debt is something that you want to avoid at all costs, that is why it is crucial that you use your credit card only when you know for a fact that you can pay it off at the end of the month.

  1. Get a Bank Loan

Bank loans are great for any starting investment. People use banks for their houses, cars, and other expensive and useful things. So why not finance a business using a bank loan? Some banks even offer small business loans that have a very low interest rate and allow you to take out large loans at a given time. There is some risk in this, but, like credit cards, you can avoid the risks if you make your payments on time.

  1. Pledge Future Earnings

Some investors will invest more money in your business if you pledge some of your earnings to them. For example, Kjerstin Erickson gives 6% of all of his business earnings to an investor that paid up $600,000. There is a marketplace for this online called the Thrust Fund. There is some risk in this as well, considering that there is very little legal involvement in this kind of investing. Fortunately, this is becoming more popular and there might be many more laws in the future that will protect both parties involved.

  1. Tap into your 401(k)

Tapping into your 401(k) is one of the riskiest and most complex things that you can do. It is recommended that you consult a financial advisor if you try to do this, since if it is done incorrectly, you can lose the money that you took out, your business, and possibly the remaining bits that you had in the 401(k). But if you follow all of the steps in this correctly, then you can be rewarded greatly, since there should be lots of money in there. If your business does succeed, then you will greatly benefit from this huge risk, but if things don’t pan out, then you will have lost your retirement fund, which is exactly why doing this is never recommended by any personal finance advisor.

  1. Angel Investors

Angel investors give out great sums of money to earn a small profit. They give out this money because they know the potential in new and growing businesses, and that they will do anything they can to get some investors. This isn’t a bad thing though, since every business has a starting point and they all like to give back to their original investors. Some things to know when talking with these investors is that they like people that are knowledgeable in their market and that they dislike people who are just in a market because it is a fad and you want to get your hands on the hot cash. A small tip would be to avoid making a fad business, because once the fad ends, the business will end.

  1. Government Grants

Government grants are an amazing way to get money. Many businesses get money from these grants, especially ones that are unique or new. A lot of technology companies receive money from these government grants. All you have to do is be a business that is already started (not a startup) and you can apply for these grants. Most often, you will see grants given to businesses that are non-profit, healthy, or technology. Grants usually aren’t given to businesses that have a lot of competition and/or are not helpful to the community. Other grant options are through non-profit organizations, which there are also plenty of.

  1. Use Cash

Cash is the best way by far to finance a business. If you don’t have the cash ready to finance a new business, then you might want to start a new savings specifically for that. Doing so will help you reconsider some of the fad ideas that you might have had, since those will die out as you are saving. Saving up to start the business will also attract some attention if you tell your friends and family, and might actually attract Angel Investors. There is nothing wrong if you wait to start the business, and it might actually help you attract new customers if you start the hype and it gets big enough. Hype is something that people love, just look at the video game industry.