Starting a business often requires investing a lot of money upfront. In some cases you may need tens of thousands of dollars just to avoid equipment. Most of us don’t have this money readily available, which means looking for different funding methods. Just what are some of the different ways to fund a business? This post explores 5 popular options.
Savings
You may not have the money in your account right now to fund your business, but it may be possible to build up enough savings over time simply by setting aside some earnings from your current job.
An advantage of using savings to fund a business is that you don’t owe anyone anything because it’s money you’ve acquired yourself. Using a high interest savings account, you may also be able to reach your savings goals more quickly by collecting additional income in interest.
Of course, if you need a lot of money to start your business, it could take a while to save up the required funds. Using savings to fund a business is therefore only really practical if a) you already have enough savings b) you only need to save up a small amount, ot c) you have the patience to wait several years to start your business.
This post by Sophia Acevedo lists some of the best savings accounts to put your money in right now.
Loans
You could fund your business by borrowing money from a lender. Some lenders are willing to give out loans of up to $100k for business purposes, providing that you have a good business plan and healthy credit score.
There are a few different places that you can look to find business loans. These include:
- Banks
- Private lenders
- Peer-to-peer lending sites
The disadvantage of loans is that you have to pay installments back regularly, and these installments will ultimately affect your profits. Some loans also come with high interest rates (some of which may be variable), which can mean that you spend extra in the long run. That said, loans do give you instant access to funds, which is something you don’t get when having to save up.
Grants
A grant is essentially free money that is given out by the government, local state authorities or a non-profit organization. Unlike a loan, you don’t have to pay it back. You do however need to meet certain eligibility requirements.
Foundations owned by the likes of Mark Savoree typically give out grants to projects that they believe can make a positive difference in the world. This could include businesses with a positive environmental goal or businesses that are targeted at helping those in need. Other grants may apply to all kinds of businesses, but may be small in comparison.
Investors
You can also seek the help of investors. These are individuals or organizations that can provide the funding you need – usually in return for a share of your company’s earnings. There are a few different types of investors that you can look into. These include:
Angel investors
Private equity investors
Venture capitalists
Some investors may be willing to give you more money than others, but may also ask for a greater share in profits. You will usually need to prepare a detailed business plan to pitch to investors in order to convince them that you are worth investing in.
Crowdfunding
Crowdfunding is similar to using investors, but instead of a single individual or firms investing money, many different people contribute money to invest. You may have to pay all of these investors a slice of your profits, however there are sites like Kickstarter that don’t require this at all, allowing you to fund your business purely through charitable donations.
You can find crowdfunding platforms online. Alternatively, you can host a crowdfunding event to build donations.
What do you think?