Whether you are a new business seeking initial capital or already up and running and looking for money to grow your business, remember to stay flexible and remain vigilant.
A majority of businesses receive their funding from many different sources phased out overtime. There is no such thing as funding that is easier to come by than another. Here are several options to fund your business:
- Friends and Family. Obtaining funding from friends and family is the most popular way to get seed money for your business. This type of funding is structured best as a one-year loan with high, low, or no interest. Remember that all parties are encouraged to get legal advice with regard to the lenders documents.
- Product Presales. Selling your products can be a highly effective way to raise money for your business. Keep in mind foreseeable issues such as coordinating inventory delivery, having enough products for pre-sale and anticipating back orders.
- Small Business Administration Loan. The Small Business Administration (“SBA”) offers two types of loans to entrepreneurs who need capital for their business: the 7(a) guarantee small business loan and the 504 fixed-asset small business finance program. Prospective borrowers can inquire about these loans at banks affiliated with the SBA.
- Angel Investors. Angel investors have helped with several big companies including Google and Costco. This form of investment typically occurs in a business’s early stages where investors expect a 20 to 25%return on their investment.
- Selling Assets. Many entrepreneurs are in possession of items such as cars, jewelry, antiques, etc. that can bring in a large amount of money if sold. Consider selling your possessions as an alternative financing method for your business.
- Renting your Residence – There are many websites that allow you to rent your home or apartment for days at a time or months. Potential issues that can arise would be making sure you have a place to stay during the rental time and a place to work if you usually use a home office.
- Lending from high-net-worth individuals. Lending from these individuals can be done through convertible debt or terms of credit. Convertible debts is a blend between debt and equity. It is secured through a convertible note and carries a per annum interest rate until some point in the future when it converts into equity. The conversion usually occurs during the next round of financing and is given warranty coverage or discounted based on the company’s valuation. Terms of credit are only usually given to companies with a solid track record. They come in the form of a senior secured loan with a high liquidation preference, meaning they must be repaid before all other debt or equity holders.
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