While creating a business can be fun and exciting, you will often encounter fees or expenses that you weren’t anticipating.
If you don’t have enough personal capital to cover these early expenses, you company may fail before it ever gets the chance to succeed. Fortunately, there are various ways you can find some financial help in the early days of your business.
Not all business funding options are created equal. In some cases, you may need to relinquish some of your equity or control in your company, in others, you will need to collect or borrow a set amount without much flexibility. Here are a few common ways that people fund their start-ups.
1. Business Line of Credit
A business line of credit is an amount that you can draw from when funds are needed. You do not need to withdraw the full amount and you will only pay interest on the amount you currently owe. If something were to occur where you needed more funds for your business, you can simply withdraw more from your line of credit up to its maximum amount. You will not need to sit through a lengthy loan process or deal with investors.
Even if you have partially (or fully) paid back a loan, as long as your business line of credit is still open and active, you can access more money to the maximum amount allotted to your company. If you are running your own business it is important not to use funds on items or services outside of company use. For more information read our article on why you shouldn’t use a business line of credit for personal use.
2. Angel Investors
An angel investor is a person who has a lot of net worth that is willing to invest in your small business for a share of equity in your company. The amount they expect in return and their involvement in how your business is run will vary depending on the investor. Most will go over your plans with a fine-tooth comb and question you about every aspect of your company.
If they like your business model, they may fund your business because they expect to see a return on their investment. How they are repaid will depend on the investor, but they typically want shares in your company. If you don’t personally know any high-net individuals to approach, you may be able to find angel investors online or through networking.
3. Venture Capital
Venture capitalists are similar to angel investors, though their funding is a group effort instead of an individual effort. In exchange for equity shares in your company, venture capitalists will lend you the start-up-funds that you need. As they are financially invested in your growth, they will often be involved in running and managing your business.
This can actually be a good thing, however, as most venture capitalists only invest in industries they know a lot about and have a collective experience. When approaching venture capitalists, remember that they often asked for funding. Make sure to have a clear business plan and know what you are willing to give them in return for their help.
If you want to be responsible for all business decisions, you may need to look outside of angel investors and venture capitalists for funding.
Crowdfunding is when a group of people give you money to build your business or create a specific product. These people usually are not connected to each other. They genuinely see a need for your product or service and want you to develop it.
The problems with crowdfunding are that they can be very time consuming and you may not reach your funding goals. You may also have to create costly incentives for those who donate to your cause which will take a portion of the funds you need for your project. There are many sites online that will manage your crowdfunding campaign, though they will often take a percentage of your earnings.
5. Bank Loan
Bank loans can be time-consuming to set up. Your bank will look through your personal records to ensure that you have good credit and a history of paying loans back on time. They will also want to see a strong business proposal with details on how you intend to earn money and when.
If and when you are granted a bank loan, it will be for a one-time, fixed amount. They will lend you the money and you will pay it back, with interest. If you need to borrow more money in the future (regardless of how much you have repaid), you will need to go through the entire process again.
Business Line of Credit with &Solved
&Solved has been providing business lines of credit to Australian companies for years. We are trustworthy, dependable, and are always willing to help you find funding for your business. If you want to maintain control of your company and have flexible spending options, contact us to speak to one of our friendly associates today.