Even if you have a great idea and a fantastic credit rating, you may be finding it difficult to get backing for your first business venture. What should you try first? There are certainly many choices available to fledgling entrepreneurs, but the key is to go for the option that will save you the most money down the road. Here are a few options to help you fund your dream that won’t tap too deeply into your future profits.
Get a Traditional Loan
Depending on the amount of money you need, getting a car title loan might provide enough money to finance your start-up. If not, applying for a small business loan might do the trick. Many would-be business owners have been scared off by the stricter lending rules that apply to all types of loans, but try not to fall into that kind of negative thinking. The major banks (J.P. Morgan Chase and Bank of America to name just two) have special funds set aside and designated for small business loans. It can’t hurt to apply.
You Can Use Your 401k
You’ve probably heard that you’ll be penalized for early withdrawal from a 401k account. While that is true, revisions to the tax code allow individuals to use their 401k savings to start a small business. Because it’s a complicated matter, you’ll probably need an attorney or accountant, someone experienced with setting up C corporations, but it can be done without suffering penalties. However, if your business fails, you’ll have lost your retirement savings.
Rethink Your Funding
Do you really need as much capital as you first estimated? Today, many businesses conduct their day to day operations online or from a cloud and there isn’t much you can’t do digitally. Pretty much anything can be stored in the cloud from sensitive data to software that can be run on any computer terminal. This reduces the cost of your overhead, which can be the largest cost in starting a business. You might even reduce your estimate low enough that you can fund the rest with a credit card.
Tighten Your Belt
If you have a job already, consider that as a source of funding. By working extra hours, if possible, and reducing your personal expenses, you may be able to set aside enough capital to self-finance your start-up. This is often preferable because it reduces the debts you’ll owe, once your business does get up and running.
This started out as a way for artists and filmmakers to fund their projects but has since expanded. Today, entrepreneurs in every industry are using crowdfunding platforms to finance their businesses. There are a few things to be wary of, however. First, some platforms limit what projects you can fund, such as requiring that you produce a physical product. Some platforms will only pay you, once you reach your goal. This means that, if you set your goal too high and fail to reach it, you’ll receive nothing. As long as you read the fine print and realize this won’t earn you enough to fully finance your business, this can be a great way to get some start-up capital.
Angel Investors and Venture Capitalists
While angel investors and venture capitalists are happy to give you the money to start your business, their motives are far from altruistic. They’re likely investing in your idea because they believe it has value and will earn them higher returns down the road. The difference between the two is that venture capitalists tend to work with large corporations and rarely take chances with up and coming entrepreneurs. If this is your first business, you may have more luck seeking out angel investors, who typically work more often with individuals.
There are many ways to fund your start-up and, if you’re inventive enough, you can come up with more than those listed here. If you can keep your costs low and limit the amount you’ll have to repay, you may even be able to reduce the risks associated with borrowing capital. As long as you have a business plan, a promising product, and the drive to succeed, funding your business shouldn’t pose too large of an obstacle.