One of the biggest headaches for entrepreneurs with a new business or business plan is knowing the different financing options available to finance their business.
If you are an entrepreneur needing finance, here are some of the available options:
This is probably the first option a new business owner will think of. Bank loans and the use of overdrafts are the old-fashioned and much-used method to finance a business. However, the criteria are very strict, and banks almost always require collateral, like property, which is not ideal and could increase risk.
Using credit cards is a convenient option and you will only pay interest on the credit you actually use – but you will only be able to borrow up to your credit limit.
Invoice finance companies will advance upfront cash to SMEs based on unpaid invoices. They charge a small fee for collecting the debt. This eliminates the waiting period for payment, and gives SMEs the cash upfront.
Entrepreneurs with business ideas which could produce rapid business growth may be able to source funding from wealthy individuals who will offer their own money in exchange for a share of the business and probably some control over it.
Business Cash Advance
This is a good alternative to traditional bank loans. Cash advance companies will advance you working capital, and repayments are taken from daily credit card turnover. So you are always paying back in line with your income. This option is quick and convenient, with minimal fuss.
Borrow from family
This option can become complicated, but can work effectively if planned well and if there is a family member or friend who has the finance and is willing to help you out. It is extremely important to get the loan terms in writing.
As the name suggests, this option is perfect for start-ups that could do with some mentoring and support to give their idea legs. In most cases, investors, whether they are supporting you with finance or with their knowledge and mentoring or advice, will ask for a share of the business in return.
Peer-to-Peer lending, also known as P2P, a more recent option, involves lenders loaning finance to SMEs based on a short-term risk assessment. This is less complicated than a bank loan.
Crowdfunding is a relatively new online method of raising finance, and involves many people investing small amounts in your business. There are quite a few crowdfunding options on the web, and some may include the offer of expertise in addition to straight finance.
Whichever route you choose, make sure you know what you are getting into, and research as thoroughly as possible before making a decision.