Whether a business idea falls on your lap by happenstance or you’ve been trying to save up capital for your startup, financing is always a tricky aspect of the startup world. On one hand, there are countless options to choose from in terms of where you can finance your business, but on the other hand, the loan market becomes fairly complex from a consumer standpoint. This article aims to equip an inexperienced startup CEO and business owner the street smarts for getting the financing structure that best suits your business.
Factoring
Factoring pertains to a financing structure whereby a business entity, which is you, chooses to sell its receivables to interested parties. The price negotiated is usually at a discount in exchange for the ability to collect the cash upfront. Factoring is an option usually opted by borrowing companies with non-established credit scores or by companies, such as shoe manufacturers, which get paid long after they’ve delivered on orders. The drawback to factoring is that it’s often a relatively more expensive way to raise capital. Companies that sell receivables basically pay a certain percentage of the total loan value.
Traditional Loan
Traditional bank loans simply cannot be left out of any list that tackles financing options for both commercial and residential consumers. Bank loans are still one of the few most trustworthy financing tools a business has access to. Over the years, albeit, the lending standards have gotten more stringent, yet banks like JPMorgan Chase, are allocating more cash for business loans so it somewhat balances out your chances of getting approved. Filling out a loan application is made much simpler nowadays, with downloadable forms you can find online. Common questions you’ll need to answer on these loan forms include your current bank account data, contact details, gross annual income, and your business tax status. If you are looking to fix your personal credit to have a better chance of being approved for business loans, please visit Creditrepair.com.
Utilize Plastic
Credit cards may be a somewhat odd tool to bootstrap a business, but it’s definitely a feasible option for those who are prepared to take on some serious risk. Falling behind on your credit payments can be more destructive to your credit score as opposed to a regular consumer using his/her credit card and defaulting on monthly payments. While there are definitely caveats to using plastic to finance a business, it’s a tool that can save you from sticky financial situations, such as extending your payables deadline to maintain a desirable cash flow.
Consider Title Loan
It’s worth noting that title loan providers are not banks hence the process, policies, and requisites involved may not always be similar. Instead, title loans serve as a cash advance that use a borrower’s car or property deeds as collateral for the borrowed money. Business owners must submit an application for the loan and then present their car’s title and income information to the lender. It’s also worth mentioning that a title loan is a short-term contract, which usually lasts between a few days to a few weeks. If you are considering a title loan to finance your business, be sure to learn your state’s specific requirements prior prospecting for lenders. In addition, prepare a detailed business plan that will serve twofold – one, as a guide for your business’ future and two, as the blueprint from which your lenders will evaluate your risk worthiness.
Call in Angel Investors
Angel investors are risk-takers, which is what makes them highly favorable partners for startups who are yet to prove themselves in the market. With this comparably higher appetite for risk also comes their appetite for returns. In order to attract an angel investor or multiple investors, you’ll need to construct a very compelling case on why your business is worth taking the leap. Another benefit of working with angel investors is that they are comfortable investing large sums of cash, much higher than what any bank will be willing to offer. Of course, a drawback that deter many aspiring business owners and entrepreneurs is the fact that you are effectively giving a piece of your company’s future earnings to the investor. If you are looking for long-term partners who you can also bounce ideas off of and get industry advice, then an angel investor versed in the field is definitely the right partner for your venture.
Crowdfunding
A relatively nascent tool that’s giving birth to modern startups is crowdfunding platforms. In essence, entrepreneurs attempt to raise cash for a project they are trying to bring into fruition. Keep in mind that crowdfunding is only suited for projects that are relatively low cost and not for a Fortune 500 company in the making. To carry out a successful crowdfunding campaign, make sure to offer even small incentives for people who choose to pledge, like giving a copy of the book you’ve written or throwing in exclusive modules for the main product.
Most entrepreneurs get too fixated on how to raise money that they forget the business altogether. While scouting out financing options that give you the best scenario, cash flow-wise, allot time towards your business’ model, products, and services. A solid business plan backed with a good product/service can easily attract financing sources even with minimal effort.
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