Information on Raising Funds for Small Businesses
Obtaining the necessary funds to kick-start your small business start-up can be quite a challenging task. But before you get dejected, lets first take a look at what the numbers have to say. The average small business start-up cost to become an affiliate marketer for instance, is somewhere around $250, which is a small investment when comparing it with a $30,000 cash deposit, that is required to start a franchise.
But when you take into consideration all the other additional monthly expenses like rent, advertising, payroll and inventory, then you know that starting a small business is no ‘small’ deal. So, coming up with the necessary cash to fund your business can be very difficult when you have a car loan to pay, a mortgage to take care of, and a family to support.
Going the traditional way and opting for a loan from your bank won’t really get you very far, especially when you consider the fact that they don’t like lending out money to start-up businesses that have no assets or history. But, again do not let this dampen your spirit. It is time to take a look at all your personal assets. You never know, you might actually already have the required ‘wealth’ to get your small business started.
Sources for Funds
Here are some sources:
- Life Insurance Policy
- 401(k) Plan
- Friends and Family
- Credit cards
These are all potential sources that can be tapped into. In doing so, you will raise money out of your own resources. It will give you full control over your money. And this control is the very thing you wanted in the first place right? That’s why you chose to become an entrepreneur!
If you do have a life insurance policy, then you can put it to work. Though it sounds weird, think about it – a life insurance policy will provide money to your family and spouse in the vent of your death. What most people don’t know is that you can actually borrow against the cash value of the life insurance policy, and then pay it back at flexible rates, on your own terms.
Next, you have the 401(k) Plan from your previous employer – all those monthly statements that you filed away so diligently but never cared to even look at. Though the whole concept of borrowing money from friends and family to start your business may sound like a simple one because you already have an inbuilt level of comfort and trust with them, you need to understand that there are many risks involved as well.
If things go smoothly, then you’ll probably be the Donald Trump or the entrepreneurial king of your family or your friend circle. But, if your business goes down the drain, then it will put stress on the relations you had with those closest to you. So, is this risk worth taking?
Now, take a long hard look at your credit card. The one that you used to buy that dinner, your computer, and those new shoes – yes this credit card can help you get your business off the ground. If none of these resources work for you, then you can always take the traditional route and opt for bank loans.
Business Loans Available
- Long-term loans are probably the most common types of loans available. These loans can be used as a working capital funding source and you can repay them on a monthly basis over a term agreed with your bank or financial institution.
- Short-term loans on the other hand are supposed to be repaid within a year in a lump sum, instead of monthly.
- Credit lines are usually used for working capital funding. Instead of granting you the entire loan amount, the financial institution will give you a certain amount each year.
Some Other Sources
When looking around for small business funding resources, your bank should be your first stop, especially if you have a history of working together before. Familiarity does go a long way in clearing any insecurities and doubts. There are many other types of lenders as well, the only differentiating factor between each of them would be the kind of loan they grant – secured or unsecured. Banks grant unsecured loans, while financial institutions are in favor of secured ones.