Finding money for a business venture, whether something new or an already existing one, is challenge entrepreneurs have to get used to. It’s something every business owner must go through at least once in their careers. But it can be especially challenging if times are tough.
Without funding, whether through sufficient revenues or outside sources, companies will go bankrupt. This is especially true of small business that don’t have enough capital to stay afloat during a crisis. According to statistics, between 22,000 to 26,000 business filed for bankruptcy annually for the last five years.
If you’re starting a new business venture or staving off bankruptcy, consider the following financing options for your company.
Taking out a loan is usually the first option for an aspiring business owner but there are different types of loans available to you. Deciding which one is most appropriate for your situation can be a problem.
First, you need to decide whether to take out home loans or business loans. With the former, you can immediately remove mortgage loans from consideration as these are specifically supposed to go to paying for mortgages. Home equity loans, on the other hand, can be used professionally. Although the downside is if you can’t pay it back, you can lose your house.
For business loans, if you only need money to buy equipment for your company, try equipment loans. These types of loans don’t need collateral because the machinery themselves will serve. Small Business Association Loans are more generous, giving you a lump sum with great interest rates and repayment terms. But they can be difficult to acquire.
Analyze your current situation and make projections on the future of your business to determine which loan will be the right fit.
Admittedly a long shot, finding an angel investor is the dream for a lot of business owners. These people are individuals or groups who will make an investment in your business. They will often do so by purchasing equity in your company, which means they’ll own a part of your business.
In exchange for this small ownership and a percentage of your cash flow, angel investors often also come with their business expertise and industry contacts. This alone makes them appealing to small businessowners who may not have access to either.
However, wrangling an angel investor is an admittedly difficult challenge. These investors tend to be very careful with whom they put their trust in. Your business has to show potential for greatness, and you have to convey that you’ve got what it takes to succeed.
It’s also important to retain the services of lawyer when dealing with angel investors, to make sure you don’t give up more of your business and rights than you’re willing to lose.
Financing a small business form your personal savings or using them to keep a business in peril afloat, should be your last and most desperate option. Your savings are your safety cushion should your business fail to recover and losing them can mean a difficult period ahead. However, using your savings to fund your company can have some benefits. First, you won’t owe money to anyone and you’ll have no interest to worry about. It could also show potential investors that you have a lot of confidence in your business and might encourage them to follow suit. That being said, explore every other option first before turning to your savings accounts.
When looking for the right financing option, always consider not just your business’ current status, but its future. Doing so can give you great insight in which options are ideal and which could cause more trouble in the long run.