One of the mysteries of starting a small business is funding. How do owners pay for their ventures, and how do they keep that money coming in?
There are a number of ways for small businesses to come across the capital necessary to thrive. While the best option will vary depending on the industry you're attempting to break into, your connections and other factors. The constant is that money is needed to fund startups, and chances are you will end up seeking a creative way to access that capital at some point. According to Entrepreneur, the type of funding you get will be determined by your previous experience, as well as by what you're willing to sacrifice in order to build your small business.
Read below for information on some of the funding options available to you as a small business owner.
1. Angel investors
Attracting angel investors can be a great way to find funding in the early stages of a business, so long as you understand the relationship between shareholders and owner, according to Forbes. When an angel investor begins sinking funds into your business, you will have to start acting in his or her best interest. Just because someone is willing to fork out money for you, does not mean that this investor will make a good business partner as time goes on. Finding the proper investor can be a difficult task. Be transparent with your operational and financial planning and ensure that the relationship you build with an investor is based on trust.
Some areas will even have networks of angel investors, Entrepreneur noted. These groups will be willing to pool their resources in order to fund startups. Do some online research and see if any angel investor groups exist locally.
2. Do it yourself
The cost of funding a small business these days is at a historic low, according to Entrepreneur. Because of this, now is a great time to fund your new company yourself, depending on how much capital you have available. The vast majority of startups are actually self-funded, something also called bootstrapping. Some small businesses may take more money to start than others, and this is surely a case-by-case basis, but it is possible.
Ways to self-fund include utilizing personal assets, savings accounts and zero interest credit cards, Forbes explained. If you are 100 percent sure of your idea, then funding your small business yourself may be the best way to go in the early stages. In addition, this will calm investors who see that you're willing to put your own assets at risk for the sake of your project.
3. Small business loans or grants
While acquiring a loan isn't easy, especially if your credit score isn't the best, there are resources that make it possible. For example, there are certain government funds that support small business growth in important sectors. Check out Grants.gov, a directory of over 1,000 federal grant programs, in order to get a look at the government funding venture that apply to your business. If you hope to get a loan, in addition to a good credit score you will need a solid business plans, projections of profit in the future and proof you have invested some of your own assets. Small business loans are also useful because you won't be giving away a piece of your business in order to get funding.
If you're starting a business, consider the three options above for funding, and contact an expert for more financial tips on funding a small business.