Every business needs funding depending upon the type of products, services, manpower etc. But it is important for every business to know how to procure funds.
What Not to Do with Your Funds
1. Don’t Spend Unnecessarily
One must not get carried away with the inflow of funds, and take that as an excuse to splurge. Having funds does not mean you won’t pay those back; some day or the other, one has to. So, one must spend wisely.
2. Don’t Waste Money on Premises
If working from home is an easier and cheaper option, one must not spend on expensive business premises. Unnecessary rent will only add to the liabilities of the business.
3. Don’t Employ Recklessly
Having funds does not mean one should employ without reason. Hiring freelancers and outsourcing certain jobs can be better option as compared to having permanent employees.
Following are the five ways to fund a business:
1. Take a Personal Loan
Taking a personal loan from a bank is one of the very first options an entrepreneur chooses. A personal loan is secured by the owner’s assets, and one gets the full amount in one go. The interest and principal are paid later according to the time period of loan.
Businessmen must be careful while securing the loan. If the loan is secured by a house, one must be certain that the business is stable or else there are chances of losing the house.
That is why it is essential to do a complete research to apply for any loan. Local vicinity must be thoroughly explored for loan options.
One can also apply for a Small Business Administration (SBA) loan. The SBA guarantees a commercial loan with minimum paper work, while the bank thoroughly checks the business plan and financial information.
2. Use Your Own Savings
Nothing is better than funding from your own savings, since you won’t have to worry about interest. If one has saved consistently then that amount can be used in the business.
Assets always make it easier for the entrepreneur to expand business. This is a smart and safe option as there are no hidden costs; what you spend is what you spend.
3. Approach Angel Investors or Venture Capitalists
Another option is to approach an angel investor who gives start up money to run the business. Such investors take more interest in the business as they want to make more money.
Venture Capitalists (VC), on the other hand, take higher risk as compared to angel investors and thus expect a higher return. VCs help the company go public through an Initial Public Offering (IPO), and help establish the business in a shorter span of time.
4. Ask Friends or Relatives
Asking friends or relatives for money is a very easy option as the chances of refusal are comparatively less. One can also offer them a stake in the business for them to make up their minds.
The funds that they provide must be paid back as the business pays back other parties.
5. Fund Through Credit Cards
Credit card companies these days offer 0 percent financing to businesses. If one is interested in paying back sooner to avoid long term liability, one can go for this option.
However, this method has its drawbacks. It must be used with caution as interest rates are higher than that of a bank loan. It becomes difficult to pay later.