5 Ways To Fund a New Business
One of the most challenging aspects of starting a new business is finding funding. Most entrepreneurs don’t have enough cash on hand to foot the bill alone and finding lenders who want to take a chance on an unproven idea can be difficult. Fortunately, there are other options, so read on as I share some ways to find funding for your new business.
Funding Option #1 – Venture Capitalists
Venture capitalists, such as Patrick Chung XFund, are investors who give money to businesses they think have high growth potential. In return, the venture capitalist gets an equity stake in the business. The upsides to using a venture capitalist to fund your startup include that you can raise a large amount of capital, you may get assistance with managing risk, you don’t have to pay the money back and they will likely assist you with launching your business in other ways. The downsides are that you give up some control over your business, attracting the interest of venture capitalists can use up a lot of time and energy, and if you don’t meet investor expectations, you could lose your funding.
Funding Option #2 – Crowdfunding
Crowdfunding is a popular way to fund a new business because it is relatively easy to set up a crowdfunding page and it doesn’t cost you anything upfront to try. Usually, entrepreneurs who run crowdfunding campaigns offer crowdfunders an incentive to contribute, such as a free product, discounts, or other perks. The upsides to crowdfunding are that you don’t have to give up an ownership stake or repay contributors. However, there is a lot of competition. Getting noticed and convincing people to give you money can be difficult.
Funding Option #3 – Small Business Administration Guaranteed Loans
It can be difficult to get a business loan from a traditional lender for a startup. However, SBA-backed loans are usually easier to qualify for. This is because there is less risk to the lender. To find one of these loans, visit the Lender Match page on the SBA website. Answer some questions about your business and then look for an email with contact information for SBA-backed lenders who may be willing to finance your business. The upside to this process is that these loans are easier to qualify for than traditional business loans. The downside is that you must repay the loan, plus interest.
Funding Option #4 – Online Lenders
Not all online lenders are willing to lend money to startups, but some will. These lenders usually offer easier qualification criteria than brick and mortar banks. However, interest rates may also be higher. Taking out a high-interest loan increases your risk, but may be worthwhile if you can’t find lower-risk alternatives.
Funding Option #5 – Credit Cards
Credit cards are usually easier to qualify for than loans. However, they also carry higher interest rates. If you use credit cards to fund your startup costs, try to pay them off as quickly as possible to reduce interest charges.
You may also read this article on 20 Strategies to Fund Your Business.
Funding a new business is seldom easy or risk-free, but if you have a good business plan, it can be worth the risk. Most startups rely on a combination of these different financing techniques to raise capital for their new ventures.