For the first time entrepreneur, finding money to get a business off the ground isn’t going to be easy, especially for the entrepreneurs that have no collateral. The following lines are going to be all about how young starry eyed entrepreneurs can get access to the finances they need for a startup.
Well, once you have made up your mind on the kind of business venture you will be willing to take, the next step will be to figure out where the finances you need will come from and who will be willing to fund your business. So, where do you start? The best place to start off your search is by looking at yourself in the mirror. Self financing is the best option when it comes to starting up a business. Apart from the obvious, any other investors, such as, bankers, governments or even the venture capitalists will all want to know how much of your own money you are willing to put on the line to start up your business. In the end, if an entrepreneur doesn’t have enough faith to invest in their business, why should other people, right?
Use a Credit Card
While many think of it as a good idea, using ones credit card for funding a business is always risky business, no matter what the experts say. The main reason why it is so is because if an entrepreneur falls behind in paying back the money, your credit score gets a beating, which means bad news for you. By just paying the minimum every month young entrepreneurs fall into a hole that they are seldom able to climb out of. That being said, if you do use your credit card responsibly it will enable you to get out of jams and can even help by extending the period in which your accounts payable needs to be paid.
While most of you know that equity means ownership, with equity investment, the investor makes their money available in order to secure an ownership share in their business. The important part is, to make sure what you are getting yourself into and to also consider how much of your ownership you are willing to let go of for a price. Once an entrepreneur sells out 51 percent of their shares, they automatically lose ownership and all control over their company.
In short, equity investment involves any money from an individual or individuals, including yourself in your business. The money may be from inheritance, personal savings or loans and even from friends and family or stockowners, but they are not secures on any of the business assets. Before going any further, look up the BC laws before applying this option to your company.
Crowd finding websites can be a fun an highly effective way of raising large amounts of money for your startup. You can also set goals of how much you want to raise. After that, people including friends and family can all pitch in to pledge money for your startup. Some famous crowd funding websites such as Kickstarter.com have helped fund thousands of projects from music albums to movies. Crowd funding websites should never be considered as a long term thing, but rather a short term way of getting the finances that are needed to get your business off the ground. To get people interested, you could also make them an attractive offer such as, offering incentives and free gifts to all who make a significant pledge.
By far, the most common form of equity investment is personal savings. Young entrepreneurs are most likely to get most of their funding from personal savings and family inheritances. In fact, according to latest statistics, almost 70% of all small to medium sized businesses are started with the help of personal savings. While starting up your own business, always aim to fund at least 50% of it from your own pocket. This will not only give you the drive to succeed but will also provide you with the motivation that will keep you from failing. Apart from that, putting money into your business will also show other investors that you are confident about your product or service, which is always a good thing for attracting new investors. Also, even banks that give out small personal loans do so by securing any backed assets you might have.
In order to increase your leverage and equity position in your own business, always look to keep your personal investment to at least 30% throughout your business. Because the more equity your business has got, the better its position will be and the more attractive it will be to other investors.
Normally, the most sought after type of financing a start up business are the government grants. The main reason being that its free money that the entrepreneur doesn’t have to pay back. The sad part is, that a grant is not always an option for your start up because there are seldom available and even if they are, they are mostly more geared towards specific industries and trades. The vast majority of government funding are loans which you will have to pay principal amount with interest.
44% of finances for a startup company comes from commercial or personal loans that are given by financial institutions. One can also use long term loans for fixed assets that you expect to use for at least a year, for example, vehicles, buildings or equipment. This type of loan is normally secured by new assets or other unencumbered assets.
These loans are for a one year term or less. It also includes revolving lines of credit and credit cards. This type of loan is normally used to finance the day to day expenses of a business and can also be subjected to a higher base interest rate.
Pledge Some of Your Future Earnings
If you are an entrepreneur then chances are, you are ambitious and ready to make a bet when it comes to your future earnings. There is a way in which entrepreneurs are able to offer up a certain percentage of their future earnings in exchange for upfront cash to start up their business. For 6 or 7 percent of your future earning, you might be able to secure up to $600,00 for your startup so its worth a try.
Expanding Your Business
It is extremely important for young entrepreneur to be wise while expanding their business or expanding it. The world of business is extremely hard and very competitive so you need to be efficient when running one. Before taking a loan from anywhere, an entrepreneur should make sure that they will be able to pay back the amount in the specified time frame. Apart from that, most young entrepreneurs think that just by sitting down and writing a business plan they will solve all of these problems, which could not be more further from the truth. The plan is just a guide to help you as an entrepreneur, but the bottom line is it will all be about you from start to finish.