Different Ways of Financing a Business

Starting a business comes with its fair share of challenges and rewards. One of the most common challenges that entrepreneurs face is that of finance.

Entrepreneurs need to be flexible when it comes to finding ways of financing a business.

Get a bank loan

Lending standards are much stricter these days, but many mainstream lenders do have allocated funding for financing a business.

Use a credit card

This is quite a risky option, but if you use it responsibly, a credit card can get you out of trouble and can be used to purchase equipment.

Crowdfunding

There are various ways to use crowdfunding to raise funds in a low cost, creative way. You’ll set a goal for how much money you’d like to raise over a period of time. Friends, family and strangers can then pledge money in support of your business venture.

Crowdfunding sites like Kickstarter are supposed to facilitate the asking for and giving of support for single, one-off ideas. Usually, project creators offer incentives for pledging.

Angel Investors

You can pitch your business idea to angel investors. Angel investors will look for sustainable businesses to provide funding to. When seeking finance from angel investors you need to have a thorough understanding of your business and the industry in which it will operate. Angel investors want to see that you can demonstrate expert knowledge of the market in which your business operates.

Family and friends

You could always ask family and friends for funds. Make sure that you do this with a formal business plan. You need to be clear about whether it’s a loan or if you’re offering equity in exchange for funding.

Get a micro loan

Most banks will ask for some form of collateral. If you don’t have this or a good credit record, your next best bet is likely to be a micro lender. This is one of the easiest ways of financing a business.

There is usually less documentation required and smaller loan amounts are available- something which traditional lenders like banks are unwilling to provide.

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