Starting a new business is exciting; whether you’re building something small that can happen from your home office or something that you’re hoping will eventually take over the world, you need to get some cash together to get started. There are many ways to fund a new business, from savings to crowd-funding to loans. There’s no right way to start your start-up; there’s just the way that works best for you. Here are some possibilities to get you started.
1. Side Hustle
The safest way to build your business is as a side hustle. The phrase has gotten a bad name in the gig economy, but it’s still a good idea. When you’re working a 9-to-5 job, you have the income security you need to be a little more adventurous with your projects and prospects.
You may be able to build up a client base or develop a prototype without worrying about how your bills are going to get paid. This can offer you a lot of time and freedom you won’t have if you just jump right into life at your new company.
2. Savings
Another option for building your new business is saving up the money you need. This may not work for a company that’s going to eventually develop tech projects that need significant funding; it might be a good way to buy into a small or medium sized franchise, or to start a small local business.
By building a solid business plan, you can get an idea of how much money you would need to save to get your company started. Remember to overestimate expenses and underestimate profits for at least a year.
3. Lines of Credit
If you have a home or other property, you may be able to borrow against your home’s value in order to get funding for a new business. You can also, in certain situations, withdraw from or borrow from your 401k or other retirement funds.
If you are trying to create a differentiation between your personal funds and business funds, however, be cautious of this option; putting your personal assets on the line can affect how your business is considered, should you need to go through bankruptcy.
4. Credit Cards
Depending on the type of business you’re starting, credit cards can also be a solid way to get your business off the ground. If your business is going to be separate from your private finances, you may be able to get a business credit card, which can be protective if your company is ultimately not successful.
Credit cards are the best way of funding your business when you expect to have short term expenses and relatively quick profits so that you don’t start accumulating big interest amounts right away.
5. Family Loans
Getting parents, siblings, or other family members to buy into your business concept is an old idea, and it still works. This is particularly true as parents retire, but aren’t ready to stop working. A part-time participation in a family business might be the right thing to keep parents from getting bored after they leave their traditional job.
6. Crowdfunding
The internet has made another method of getting seed funding for your business possible: crowdfunding. Through various platforms, users put together a business plan and post it, generally offering different tiered “rewards” in order to get pledges from people who support their product or service. This can help creators gather those crucial early funds.
It’s important to remember, however, that there are a lot of proposals on these forums now, and putting together a compelling argument for why people should support your product is crucial for success. There are many guides on the best ways to do that on the internet; it’s a good idea to read through a few while you plan out your campaign.
7. Non-traditional loans
When lending became very tight following the 2018 financial crisis, a number of non-traditional loan ventures opened. While typical banks tend to have very tight guidelines and require significant proof of business success before they’ll issue a loan, non-traditional lenders often have lower requirements before they will underwrite a loan.
That said, those loans often come with higher interest rates and more demanding repayment terms. Before you sign one, make sure you know exactly what you’re going to pay, and look for conditions such as penalties for early repayment.
8. Traditional Loans
If you have excellent credit, a solid business plan, and assets to demonstrate, a traditional bank may be willing to issue you a loan for your business. If you are a woman or belong to a minority group, you may qualify for loans through specific federal programs designed to increase business ownership and growth in these groups.
Otherwise, you may have a difficult time getting a traditional loan for a new business. There’s an old joke that banks will only loan you money when you don’t need it.
There are many different ways to get the money you need to start your business. Determining how much money you need, how likely you are to qualify for different types of loans, and deciding what you’re willing to risk will all help you decide the right type of credit for you.
