Local business ownership comes with many challenges, but none can compare to financing in the early stages. Finding the right source of cash flow for your new company can be a nightmare, especially if you don’t know which options are available. To help you get started, we’ll go over the most reliable and effective financing options for local businesses.
Bank loans
One of the safest and most surefire ways to finance your business is through bank loans. As is the case with cars and homes, banks allow you to finance your up-and-coming venture right from the start. The great thing about going through with bank loans is that they allow you to access plenty of funds, and this can mean the difference between success and failure for many new businesses. At the same time, you can begin building solid business credit through long-term plans.
The downside is that banks oftenPersonal Loan Vs Gold Loan: Which one should you go for in your hour of need? have strict criteria for financing businesses. They require extensive and detailed business plans upfront. There is a high chance that a bank will deny your loan request if they don’t think your business will succeed.
Crowdfunding
In the past couple of years, crowdfunding has become the go-to funding choice for many up-and-coming inventors and entrepreneurs. There are quite a few websites that allow you to easily set up crowdfunding for your new business, and they’re only rising in popularity.
Part of the reason for the massive swing towards crowdfunding is the fact that you can reach your target audience directly. If enough people like your idea and want to see your product happen—they are likely to donate some money. Plus, donating may come with perks depending on the website and the company involved.
This can include samples, early prototypes, or anything else you can think of to motivate prospective investors. Alternatively, they may just invest because they want to see the product on the market. Indiegogo and Fundable are some of the prominent crowdfunding sites for small businesses, but there are plenty of them out there.
Angel investors
Angel investors differ from other types of financing options in a few ways. For one, it’s not the entrepreneur that’s on the lookout for business investors, but rather the inverse. Angel investors are constantly looking for new businesses to finance, which can make it a lot easier for entrepreneurs to get their funding. Companies like Google started with funding from angel investors, and this was the case for many of today’s popular tech companies.
To receive funding from these investors, you will likely have to give some share of equity in your company, though the amount may vary. It all depends on the idea, the angel investor, and various other factors. These entities are registered with regulatory agencies, and they can be a great boon for many startup companies.
Private money lenders
For many aspiring entrepreneurs, getting funds quickly and reliably is a top priority. Few financing options can fit both criteria as well as private money lenders. If you can get approval from a private money lender, your business is in the clear for quite some time. The terms of a loan and the amounts involved can differ from lender to lender, which is why you should do your research and choose one that suits your business’s needs.
Even if you aren’t particularly interested in long-term investments from these entities, they can still benefit your business in other ways. Private money lenders are an especially popular choice for working capital and short term business loans. They can help your business stay afloat during difficult times without being difficult to pay off. It’s one of the fastest ways to get financing, and it’s not as challenging to secure as a bank or credit union loan.
Product pre-sales
Another creative way to receive financing is with product pre-sales. This method doesn’t require any loans or credit, and you don’t have to negotiate with any institution. Instead, you use a system similar to crowdsourcing, but with one caveat—you sell the product in advance.
Is your business mostly focused on selling one type of product? Pre-selling could be a suitable financing option. Not only does it guarantee that you will have a steady supply of customers if enough have signed up and pre-bought the product, but you can also manage logistics with ease. You won’t have any shortages or excesses of the product in the beginning, as you will know how many customers pre-bought them. The downside is that you could receive a large influx of pre-orders unexpectedly, which could put some stress on manufacturing.
Conclusion
There are many different ways to fund an up-and-coming local business, and they all have their own pros and cons. Depending on how much funding you need and how quickly you need it, you might only need one of the aforementioned financing options, or you might need several. Make sure that you do your research on each option before making your decision.
