Financing your Business
By Robert Nelson
So you have I great idea to start your new business
Now the question is what about financing your business? Where will I get the money needed to get started?
The hardest part of starting any business is getting the necessary funding to cover the start up expenses. You need the rent, the needed equipment, the supplies to make your product, and the payroll for any employees. And remember that there will be a build up time period before the business starts bringing in sales. The list can grow and the costs can be daunting.
There are many options to get the needed start up capital for your business depending on the amount you need. You may need to consider several working together to get the capital you need. But there are pros and cons to all of them.
Use the money in your personal accounts:
The benefit to this funding option is that you do not owe any money to another business or person. But you need to be sure you are not over taxing your budget.
Charge the costs to your Credit Cards:
Many of us have multiple credit cards we can charge thousands on which can be a good source of capital to start your business. It can also give you a higher credit rating as you make your monthly payments on time.
Borrow from your 401K:
This money is your nest egg for your retirement. But if your retirement is still far enough away it can be a source of capital. Make sure you check with the manager of your 401k before making any decisions on this money. Many plans will allow you to borrow from them but there is usually a repayment system in place. Any amount you do not pay back in the same year will be seen as additional income and the IRS will tax you on it.
Mortgage your house:
If you have equity in your home you may consider refinancing. This can give you a large fund to draw from. Depending on the amount of equity in your house you can get a mortgage on a portion or the entire amount. Be careful with this option, the interest rates can make your payments very high. Is financing your business worth the risk of losing your home?
Get a Business Loan from a bank:
You take your financing plan, business plan, marketing ideas and all the data you have collected on your target market and got to a bank and show the loan officer why you believe you will be successful in your business. This sounds like a straight forward idea but there are hoops to jump through. And you may still not receive a loan, or a large enough loan to meet all your startup costs.
Crowdfunding is a way to gather investments. Simple put it is a way to generate capital to fund a new business by collecting small amounts from multiple investors. These investors can be friends and family or you can post on a Crowdfunding platform online. There are many sites where you can post your idea or business model and people who find your proposal interesting will invest money in an account for your startup capital.
Once you have your startup funding you need to implement your spending plan. You want to make sure you are getting the most out of your funding until customers find you and sales come in.