All businesses, including established businesses, need financing to survive. However, financing for startup businesses is especially important because they need enough capital to cover starting costs, operational costs, and finance business growth. While most entrepreneurs prefer borrowing from family and friends to fund their startups, there are other financing options for small businesses. Among them include:
1. Small business loans
Startups can seek financial assistance from traditional and alternative lenders. You can use these loans to grow the business, fund new activities, boost marketing efforts, and expand into new markets. Small business loan options include:
- Payday business loans – Also called merchant cash advances are short-term loans with advances to small businesses. Small businesses can apply for these loans from lenders, such as My Canada Payday, to purchase inventory, supplement daily cash flow, and cover daily expenses.
- A small business line of credit – Small businesses can access financing from a small business line of credit as needed from lenders. While there’s a limit on the maximum amount, this financing is an excellent option for managing cash flow and unforeseen expenses.
- SBA small business loans – Startups can access low-interest loans from various lenders backed by the U.S. SBA. Unlike other loans, small businesses can access SBA-backed loans at low interest and enjoy favorable repayment terms.
Startups can also opt for accounts receivable financing, working capital loans, and equipment loans. You can also contact direct online lenders and peer-to-peer lending sites. Unfortunately, securing funding from traditional lenders can prove challenging. While some banks offer startup financing, most require security or collateral.
2. Crowdfunding
Startups can also raise enough working capital through crowdfunding. This essentially involves raising funds from multiple funders through crowdfunding platforms. Crowdfunding is an excellent option for your startup as it allows you to raise the required startup costs and promote your products and services.
Creating a crowdfunding campaign is also very simple. Simply select a crowdfunding platform, create a profile with a detailed description of your business, and highlight the amount of money you intend to raise. You can then market your crowdfunding campaign to potential supporters. Anyone interested in your line of business can donate in exchange for your products, services, discounts, or some equity in the business.
3. Angel investing
Angel investing is increasingly becoming a popular source of financing for startups, thanks to endless success stories from Facebook, Uber, and WhatsApp. This funding method differs slightly from venture capital. For instance, unlike venture capital, angel investors, which are individuals, contribute their money to the company.
Angel investors also fund businesses at their early stages of growth, unlike venture capital, which requires startups with some history. Finding angel investors is the main obstacle facing startups. You can find prospective investors by searching your local small business development center and sharing your business plan on AngelList, Gust Angel Network, and other reputable sites.
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There are many other endless financing options that startups and small businesses can leverage. However, you should watch out for scams and predatory lending practices. For instance, you should get all the financing agreements in writing.