Did you know that one-quarter of small businesses aren’t able to receive the funding they need to grow?
Three-quarters of start-ups choose loans, credit cards, and lines of credit to finance. Yet 12% of new employer firms require $250k+ as capital. And average equipment costs range from $10,000 to $125,000.
This article looks at 7 options when funding a startup to help your new company thrive.
Read on to see why asking a friend to help may or may not be the best move. Discover how Accounts Receivable (AR) financing can benefit your short-term goals. And how an SBA microloan can help your startup.
1. Ask Trusted Friends and Family
Before knocking on a stranger’s door consider contacting a friend or family member for financial aid.
Those closest to you are often willing to dip into their pocket to help. But don’t be vague when asking. Offer a detailed account of how you will spend the money and when you will pay it back.
However, mixing business with friendship can turn relationships sour if things go wrong.
2. Take Out a Personal Business Loan
If you already have strong personal finances then this is a solid option.
Unlike a normal business loan, these are based on your own personal credit history. They’re often funded within a week of approval and terms are often shorter. Rates are based on your credit score and lower than traditional finance options.
Make sure to check your lender’s restrictions when using this personal loan for business.
3. Apply for an SBA Micro Loan
The US Small Business Administration loan grants qualified applicants up to $50,000 as a microloan.
The average amount is $13,000 and small businesses and some not-for-profits use it to start up and expand. Uses include:
- Working capital
- Inventory and supplies
- Furniture and fixtures
Contact an SBA-approved intermediary for further details.
4. Funding a Startup Through Accounts Receivable Financing
Experiencing cash flow problems? Not getting your invoices paid on time?
This AR financing option provides finance by ‘selling’ your unpaid invoices to an AR finance company. They use the invoices as collateral and charge according to the time left until you get paid.
Accounts receivable financing is an excellent way to bring in much-needed finance when your cash flow dips.
5. Startup Seed Funding Using Venture Capital
Venture capitalists tend to invest in high-growth companies. Yet they will provide seed capital if your idea and projections are solid.
Be wary, though.
VC will want to sit on your board of directors and will own a stake in your company. That continues until you can buy them out!
6. Crowdfunding a Startup Company
Sites like Kickstarter pool a large range of investors together to offer you finance.
You pitch your business plan and request a dollar goal. If your support reaches the proposed level in time then you’ll have access to the money.
Competition is tough, though, so add incentives to attract supporters.
7. Self-Funding for a Startup on a Credit Card
If all else fails, max out your credit card!
This option often carries the highest rates. It will affect your personal credit score if you miss your payments. But it can get you over a hump on the road to success.
More Tips on How to Fund a Startup
Funding a startup the right way can make or break a business, especially in the first three years.
The options highlighted above like AR financing and crowdfunding might be new options to you. Research them and make contact and you’ll discover additional finance avenues that you didn’t know existed.
Read more tips on how to get funding for a startup business on our blog.