There is no denying that one of the most challenging aspects of starting a new business is figuring out how to pay for it. These six tips can help you find ways to finance a new business.
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Business Loans and Lines of Credit
Obtaining a business loan or line of credit is probably the most traditional method of funding a new business. There are several different small business loans available, including short-term loans, long-term loans, equipment financing and development loans.
Some loans are more difficult to qualify for than others and it is usually more difficult to get a business loan for a start-up than for an established business. Online lenders often have more lenient qualification criteria than brick and mortar banks. A line of credit is easier to qualify for than a business loan but may come with higher interest rates.
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Savings
The upside to starting your business using your personal savings is that you will not have any debt to repay. However, since many new businesses fail, you are taking a big risk by using your personal funds to start a business. Additionally, most people do not have enough money in their savings to fully fund a business start-up. It may be more realistic to use some of your savings in conjunction with other financing methods.
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Credit Cards
If you are going to use credit cards to finance a new business, it is a good idea to apply for a business credit card. Using personal credit cards can create a lot of problems when it comes to keeping your personal and business finances separate.
When applying for credit cards make sure you research the regular and introductory interest rates, annual fees, rewards programs and any other benefits the card provides. Shop around to find the best deals. Business credit cards can be a useful and convenient option. However, if you do not pay your balances off every month, it can quickly become a very expensive one.
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Family and Friends
If you do not have enough personal savings and are having difficulty qualifying for loans and credit cards, you can consider borrowing money from family and friends. The main benefit of this method is that you will usually get more flexible repayment terms and lower interest rates. However, if your business fails, you could end up losing your loved one’s money with no way to repay them.
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Small Business Administration Microloan Program
There are several financing programs available through the SBA for small businesses. The microloan program is one of the best options for start-ups. You may be able to borrow up to $50,000 to use for starting your business through this program.
A microloan program is a good option for people who do not need a large amount of money to get their business started. The interest rates tend to be more competitive than what you may be offered through other lenders. However, the repayment terms are short, which is a good thing for keeping your overall financing cost low. They may make monthly payments higher than you would like.
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Crowdfunding
Crowdfunding platforms, such as Kickstarter and Patreon, make it possible for individuals to raise money by soliciting investments from the general public. Some platforms are specifically geared towards funding new businesses, while others are more general purpose. To use these platforms, you will need to create a proposal that explains your business concept, how much money you need and what you plan to use it for. Some crowdfunding platforms work like loans that must be repaid. Others allow you to offer rewards to investors, rather than repaying the money invested.
There are many options available to aspiring entrepreneurs who want to fund a new business venture. The best options depend on the type of business you are starting, how much money you need, your credit history and your goals for your business.
