The way in which you gather money to start a small business will decide much about your small business. Whether you’re an owner or a co-owner determines the amount of control you have over the company, as well as its business structure. The size of the loan you had to take determines how far away you’ll be from the break-even point; and the monthly credit payment may have a significant impact on your operational expenses.
Lastly, whether you have an investor (angel investor or venture capitalist) decides whether you have some help in the business world or if you’re out there on your own. With that in mind, here are five ways to raise funds for your small business and several repercussions that come with each of these methods.
Get a Business Loan
The first thing you need to consider when raising fund for your small business is getting a business loan. Generally speaking, there are two major types of business loans, secured and unsecured. A secured loan is usually the one where the lender has a guarantee that the borrower will pay in time, which is why they feel free to give them a more sizeable loan and offer much more favourable terms.
This guarantee is most commonly collateral like a mortgage on a home or a car loan. As for the unsecured loans they’re the type of loan that doesn’t require collateral, doesn’t require much paperwork and offer you an application process that you can pass in as little as 24 hours. Still, seeing as how this is a somewhat bigger risk for the lender, an unsecured business loan comes with a higher interest rate.
Get a Partner
Another thing you can do to cover at least a part of expenses for your small business is team up with someone who has the same vision. This is a good idea not just because you get someone to share your expenses but also because you get someone to share your work with. No matter how competent and dedicated they are, an employee will never be as committed as an owner or a co-owner, mostly due to the fact that they aren’t as motivated.
Keep in mind, nonetheless, that a good partner is hard to find. It’s not enough to just find someone who wants the same end result as you do (most people want profit, legacy and domination of the market). Look for someone who has a similar vision of how to get there.
Use Your Private Money
The next thing you could do to fund your small business is to use your private money, regardless if you have it in your savings account or various investments. Sometimes, it’s for the best to invest money in a precious metal like platinum for example. That way, you can reinvest these assets when you come up with the right business idea. Selling an asset is also quite risky due to the fact that you stand to lose it if all goes south. In other words, going for investment money or a savings account are probably your two safest choices.
Angel Investors or Venture Capitalists
The next method of funding is the one that comes from someone who… well, invests for a living. We’re talking about angel investors and venture capitalists, two terms that a lot of people tend to mix up, even though differences between them are substantial. First of all, angel investors are most commonly individuals where venture capitalists are often groups and organisations. The biggest difference between these two lies in the fact that venture capitalists take a more active effort in ensuring that your company makes it. For a young and aspiring business, this can make a huge difference.
At the end of the day, you can also look for a way to crowdfund your business idea, which is a concept that more and more tech startups are using nowadays. All you have to do is find a crowdfunding website and make an appealing presentation. Keep in mind that your business idea isn’t the most important thing in the world when it comes to crowdfunding, it’s the way in which you present it that matters the most. Figure out your audience and find an angle to offer them. Find out what they’re getting from this idea of yours and make both the presentation and the idea all about them.
Due to the fact that starting a business requires a lot of money, we wouldn’t be surprised if you had to go for more than one of these methods. Now, at least, you know a thing or two about these fundraising techniques which may help you combine them in the way you see most fit.