Acquiring funds to start a business is not always a walk in the park but with proper motivation and drive young entrepreneurs can kick start their businesses with much ease. To ensure that you have financial security in your business and weather potential downturns, ensure you diversify your sources of finances through the sources discussed below.
When initiating a business, the prime investor should be you either via your assets or the money that you have saved over a certain period. Having a certain amount of money to boost your business start-up proves to bankers and investors that you are serious and committed to your project. It also shows that you are ready to take risks which is only when others can chip in to assist.
These are retired executives of companies or wealthy people who are willing to invest in small firms owned by investors. They are mostly top-notch leaders in specific fields who are very useful as they contribute a resourceful network of contacts and experience in management and technical knowledge. Angels finance businesses in their early stages with small amounts which increase with time as the business grows. The angels are reliable as all investors on the sites go through a vetting process that ensures all angels are legitimate.
To properly monitor their investment and the risk of their money, they are given the right to supervise the management practices of the company. That implies that they should be involved in the seats of the board of directors to ensure that there is transparency to the investors. Angels are not easily accessible since they keep a low profile thus, to access them you must search websites on them or contact specialized associations. A case in point is the National Angel Capital Organization (NACO) which is an organization that assists in building capacity for angel investors in Canada. They are always open for check-outs of their members to get an idea of whom to contact in your region.
Another alternative financing method for small businesses is peer-to-peer lending where investors borrow and lend money from each other in the same business space or industry. To eliminate middlemen who mostly act as brokers in financial institutions, peer-to-peer lending is an appropriate financing method.
Although the P2P method is efficient, it is not always reliable as the risk is generally higher compared to other lending methods. That is because you are not guaranteed that funds loaned will be refunded within the required time limit. On the other hand, acquiring loans from accredited financial institutions ensures security on the loans. Another drawback of the P2P method is that it requires a lot of effort and time as getting the right partner is never an easy task. The most popular P2P lending sites are Funding Circle, Prosper, and Lending Club.
Government Subsidies and Grants
Another method to acquire business funding is applying for business grants which are never paid back. There are federal and state grants which apply to your company although most of them require certain qualifications and are used for various purposes. For instance, many grants based on Business USA concentrate on companies that cater to minorities, farming assistance, and disaster relief.
Most governments all over the world will offer grants to businesses that start up and seem profitable to the economy. Governments will also give grants to firms that touch on important aspects of the economy such as farming, hospitality etc.
Another alternative option for secure funding is crowdfunding where a business owner requests donation from people who visit their website. One example of a crowdfunding platform is Kickstarter where business owners use the site to offer something in return for payments. For instance, when your business sells a specific product, the people who invest in it early receive the products manufactured first.
One of the crowdfunding websites is Crowdfunder which concentrates mostly on new start-ups and entrepreneurs. Another website is Onevest which vets investors before allowing campaigns to start. One risk of crowdfunding is that the platform takes a certain percentage of all the funds raised before they are given to business owners. Another risk is that estimates show that only less than 33% of campaigns attain their goals.
The qualification for having your business financed mostly depends on your business and personal creditworthiness and if you can be able to pay back the money where there is a need to do so. Acquiring the right amount of capital for your business largely depends on the investor.
Your creditworthiness will determine how much you are able to borrow to supplement the savings you have. It will also see you get grants and donations from institutions and the government. You need to convince these financial institutions and government how your business is going to help solve issues in the community.