Starting a business requires financing. It can be a crucial step in building and growing your small business to take it to the next level. Even if you have a great business idea, no business can succeed without a financing plan. With a bit of planning and research, you will help ensure that you have financing set-up to help you not only start your business but also keep it open for the loan haul.
There are some options available, though, and taking the right steps can facilitate the financing process.
Often, people starting out in business will finance their new endeavor with credit cards, a home equity loan or a personal line of credit. According to the National Small Business Association, at least one third of small businesses rely on credit cards. However experts warn that there are some significant things to consider before swiping that piece of plastic.
Family or Friends:
Another financing option for your small business (if you aren’t able to secure a loan elsewhere) is to enlist family and friends to invest in your business in the form of a loan. This support has become a common source of startup funds for many businesses.
The vast majority of new small businesses are funded with debt financing via financial institutions. The major benefit for debt financing, unlike with equity financing, you’ll retain full ownership of your business. The interest on business loans is also tax-deductible, and you’ll build your credit.
There are hundreds of different types of government loans, schemes and grants available. Some are for small amounts and others for quite sizeable sums. By visiting the websites for these government-sponsored programs, you can determine which programs align with your future business.
A good way to keep your debt-to-equity ratio under control is by financing your business with equity capital. Investors and partners can provide equity financing, and they generally expect profit from their investments. The major drawback of equity financing is that you are no longer the full owner of a business once you have other financial contributors who expect a share.