How do today’s entrepreneurs pay for all the small and large expenses that are part of starting a business enterprise? There is no one answer to the question, but there are many ways to raise money for the purpose. Anyone getting ready to launch a company should understand that not all money raising strategies are equally wise or effective. Using credit cards or borrowing from relatives might be common techniques, but they are far from perfect. The same is true of crowdfunding and taking out a second mortgage on a home.
Plenty of funding approaches can eventually get the job done, but the long-term effect can be deleterious on the financial health of the business. However, two of the best tactics are using available savings and taking out personal loans. The latter is the default preference because few founders have enough ready cash to cover startup expenses. Here is more about the methods of financing a startup or small biz launch.
Good: Family & Friends
Making the rounds with family members and close friends when you are starting your own company can be an emotionally challenging chore. While many startups have received their main infusion of seed money via this approach, it has two major faults. First, it is tougher to do than most people expect. You must ask those nearest and dearest to you to invest in an idea that yet unproven. Doing so can strain the trust factor that is an inherent part of the family dynamic. The other reason is that the average family network is not financially wide or deep enough to cover all the standard costs that go with launching a typical business enterprise. Some entrepreneurs feel awkward or guilty about asking relatives for monetary support, while others have zero reluctance about doing so. Size up the situation before using this method by making a list of names and the amount you intend to borrow from each person.
There is gold in crowdfunding, at least for those who do it right when launching companies. The newest strategy for finding capital to finance a business is also one of the better choices, particularly for those who are adept at using social media platforms. Likewise, if you have followers on one or more socials, consider getting the word out about your crowdfunding page and seeing how much you can raise in 90 days. This technique is a variation of the family and friends tactic but with a wider reach and less personal interaction. There are service providers who offer to announce and otherwise boost your cause, which is an excellent option for those who are not social media mavens. Be cautious about checking the background of any pro you hire to help with crowdfunding because there are a lot of scammers out there.
Best: Personal Loans
Taking out a personal loan is the most efficient, predictable, and commonsense way of paying for a launch. For decades, working adults have used personal loans to acquire capital for investments of all kinds, vacations, unexpected healthcare bills, and dozens of other things. One major benefit of getting a loan is that you can use the cash for whatever purpose you want.
Applying online is a no hassle procedure, and most applicants hear back instantly or within one or two business days. Those with good to excellent credit scores can get favorable interest rates and terms that match their personal budgets. Indie business owners prefer to repay the loans with operational income, but borrowers are free to use any source for repayment.
Less Than Good: Credit Cards
There are many what-ifs with respect to credit cards as a source of financing. The cost can be quite high. As a last resort, many people use plastic to get a small company off the ground. Exhaust every other method before pulling out the plastic. Consider borrowing from friends, creating a crowdfunding page, or getting a personal loan before using credit. Unless you have a high limit on a given card and a very low-interest rate, scratch this option off your list.