Every business venture costs money and finding money to fund your startup is not always as easy as you may think. Traditional ways of getting funding such as banks aren’t always willing to give loans because it is risky for them.
Thankfully, before you give up on the idea of starting your own business because money is the problem, you should know that there are other loan and funding options.
Those other options include self-funding, investors, credit cards, and so on. If you’re looking for funding alternatives, you’re in the right place. We compiled a list of some of the startup business loans and funding options for you.
1. Self-funding and loans from friends and family
Self-funding also known as bootstrapping, is building a startup with nothing but personal savings and your own financial recourses. Another very common way of securing funds for your startup is by borrowing from friends and family.
When considering your funding options always start with these two options. With bootstrapping you take all the risks yourself and you also have complete control over your business. However, with self-funding, you need to be extra careful not to overspend plus you need to be aware that with this kind of loan you won’t earn any money for quite a while.
Bootstrapping is ideal for really small businesses where you don’t need large investments like manufacturers or importers.
On the other hand, if you want your friends and family to invest in your business, you’ll have to be ready to mix personal and business. Also, convincing them to invest in your startup will be the first obstacle.
2. Small business loans
Small business loans are ideal for small startup businesses. These types of loans are secured which means that some of your assets will need to be offered as collateral.
In addition to that, you need to go through a qualification process. In this qualification process, you can either pass or get rejected for a loan. If you pass, you’ll be given money that you can spend as you see fit.
Typically lenders of small business loans are either traditional banks, government agencies, or other financial institutions.
The greatest advantage of small business loans is the possibility of getting more time for repayment. 10 years to return the loan is not a small amount of time. Additionally, small business loans offer low fees and competitive rates, which is always a plus.
There are many types of small business loans but the 7(a) loan program is the most popular with small business owners.
Crowdfunding happens when your startup is funded by a large number of people. A large number of people get together, usually through crowdfunding websites, to provide capital for small businesses. Crowdfunders aren’t considered investors because they don’t expect their money to be returned and they also don’t get any shares in your startup company.
What they do expect as a thank you for their contribution is some sort of gift. That gift can be any of the services or products your business is going to be offering.
Crowdfunding is a popular way of getting funds for your startup because it’s so low risk for you as a business owner. You retain complete control over your business and you don’t have to pay back anything in case the plan falls through.
Before deciding to go for this type of funding, make sure you do your research on the crowdfunding platform because they are all different.
4. Angel investments
An angel investor is an individual willing to provide capital for your startup. Contrary to crowdfunding, angel investor provides you funds in exchange for convertible debt or ownership equity.
One of the greatest advantages of angel investment is less risk than what you’d get with debt financing. Additionally, in case your business fails you won’t need to pay back your angel investor. However, before deciding to fund your startup, an angel investor will expect to see a well-thought-out business plan.
The disadvantage of angel investment is that you don’t have complete control of your business. You become a part-owner and you need to include your partner in every decision you make and you also need to consider their opinions as well.
5. Credit card funding
Credit card funding is, as its name implies, funding a business with a credit card. In case you can’t secure a traditional loan, credit card funding is a good substitute option. This option is ideal because you can get funding even though your startup has no credit history.
The only thing that this kind of funding requires is a personal guarantee. This means that if your business can’t repay the debt, you’ll personally have to.
Probably the greatest disadvantage of credit card funding is the possibility of spending more than what you can repay.
There are many different loan and funding options for startup businesses. If you get rejected by one loan option, don’t give up, there are more alternatives to choose from. However, make sure you do enough research on loan and funding options before you settle for any particular one.