It’s easy to have an idea for a business – almost everyone has one these days. Making this idea a reality is much more difficult and it requires perseverance and stamina to see that vision fulfilled. The hardest part of starting a new business enterprise is finding a funding source to actually open the doors of your company.
When looking for funding a business needs to know its strengths and weaknesses and find a way to represent them to the potential financiers in the most flattering light.
Create a business plan
Before you start asking people for money it’s essential to let them know what you will be spending that money on. At this point, it’s only the idea, but you need to convince the financiers that there’s profit in it. That can only be done by having a clear business plan.
The plan should cover your business’ expenses and income, as well as some proof of how much and how fast can it grow. This document is very important for your business because it will determine how likely your business is to get funded.
Some industries are subsidized by the government because their growth could be beneficial to the community at large. This is a good opportunity for small business owners to find funding for their endeavors and help the community while they make a profit.
Sometimes these funds go directly to businesses and sometimes the government just backs up the loans issued by banks and other financial institutions. The process is a bit stricter this way and there’s more paperwork, but it’s also more secure.
The most common way to get your business funded is to get a loan from a bank. Banks offer businesses loans that can accommodate most business and your task is to choose the one that’s best suited for your needs and circumstances.
Smaller businesses often need a credit line to help them deal with cash flow problems. These funds are usually limited and the interest on them is only paid when you use them. On the other hand, traditional loans provide a business with funds they could spend at their own discretion and payments are made monthly.
Peer to peer lending
Peer to peer lending refers to the practice of personal loans made out of smaller sums of money. With these loans, there’s less paperwork and fewer hoops to jump through when applying for one. That’s why these loans may be a better option for those with a bad credit score.
Peer to peer loans are usually smaller and businesses that need a head start before opening their doors can greatly benefit from them. They are usually used to buy equipment or rent office space and paid back with a quick return on investment.
Crowdfunding is a relatively new way of funding businesses, but it has proven to be quite successful especially for artistic projects. It uses a base of followers an artist or an entrepreneur has gained on social media. The followers pledge money to a project or a product and they get perks when the project is completed. The perks are usually signed book copies or special editions.
This type of finances depends very much on the way you handle social media and how good your marketing skills are. That means that crowdfunding wouldn’t be an option for certain types of businesses and projects.
Getting enough funds to start a business can be difficult. You need to create a comprehensive plan and find the type of funding that best suits your business. And after that, there’s an issue of returning the loan.