So, you have a business idea. You’ve spent countless hours planning out the details for the next big thing. But where will you get the money to start and carry you through until you show a profit?
Cash flow is critical for any business and is the main reason businesses fail or never get started. Without a business history, how do you get money for the business?
Lenders need assurance that you can make your payments, so they can really only rely on your personal credit before you start your business. If you plan to leave your current job to start this business, your capacity to get a loan and repay it can be severely hampered. So, how do you get money to start?
According to a recent SBA blog, in addition to family, friends, and your own savings, there are five popular options to consider. Let’s look at them closer.
- Business Credit Cards – Getting an unsecured business credit card can give you quick access to funds while building your business credit score. Some have low-interest introductory offers and other benefits. As with any credit card, however, read the fine print and understand the interest rates and other fees that go along with each card.
- Microloans – Two agencies in Arkansas specialize in microloans: Communities Unlimited and FORGE INC. Loans from $500 to $50,000 are available, and both agencies offer startup loans. A personal guaranty and collateral are required of both organizations, but neither requires a minimum credit score. Of course, there are other minimum qualifications including a decent personal credit history with no federal debt or open bankruptcies.
- Crowdfunding – A number of sites like Indiegogo, KickStarter, and GoFundMe offer a way to raise money for your business. Each site has its own set of rules and fees. Pay specific attention to whether you get “all or nothing” or if you can keep what you raise. Also be aware of how much time you have for your campaign and what fees are involved. Most sites get a percentage of what you raise plus a credit card processing fee.This type of funding requires a lot of dedication on your part. Some people are out there looking to fund businesses, but for the most part, this is your way to direct people to help your cause. Be prepared to give perks to those who fund you and have a plan if your campaign doesn’t come to fruition.
- Credit from Vendors – Vendor credit can be a great source of working capital for a business. Deferring payment for supplies or products for 30 days, for example, gives you time to collect from your customers and repay your vendors. Larger vendors may have credit applications and time-in-business standards, but many offer terms with minimal requirements. Some vendors even offer a discount for paying early.
- Personal Business Loan – Obtaining a loan based on your personal credit and investing that money into your business is another way to fund your idea. Most loans require collateral and good credit but take less time for approval than a traditional business loan.
Many businesses use a combination of multiple options to open their doors and keep the cash flowing. Understanding the possibilities is the first step to finding the capital you need to make that idea of yours the next big thing.