Do you remember the old saying that “It takes money to make money?”
It’s especially true in business. If you want to start a business or fund a capital campaign for a new building, it will take financing. You may have the best idea for a project ever, but without the proper funding, it will never get off the ground.
Fortunately, there are plenty of ways to get financing. Read on to discover 7 types of financing that you can use for fund your business.
Things to Do Before You Start Asking for Money
You may want to get your funding as soon as possible for your project. You have to be aware that funding a large or small project can take a lot of time, even months.
It doesn’t matter how great your idea is, you have to show that it’s a viable opportunity for people to make money. You’ll need to prove that your project is viable.
Start by writing a complete business plan. Not something that’s drawn out on a napkin. You want to show people that you’re serious about your project with a complete and thorough business plan.
You’ll need to show financials like the startup costs, projected operating expenses, and how you’ll be profitable. You’ll also need to include information about your management team and
Types of Financing
Now that you have your ducks in a row, it’s time to look at the different types of financing. Each will have different requirements and advantages.
- Your Savings
You could always fund your project or startup business yourself. There are a lot of advantages to self-funding your business. The main reason why this is an attractive option is that you maintain full control of your business.
The downside is that you are putting your own money at risk. For example, you decide to empty your savings or refinance your home to fund your business. That’s a sign that you believe in what you’re doing.
You can risk losing everything in the process. Not many people with families are willing to take such risks. However, it’s an option.
You can make this decision by how much you need. You don’t want to lose everything, but you do want to contribute something to the project. You also have to be honest about how much you can afford without putting your family and security at risk.
- Friends and Family
Another funding option is to ask friends and family for help. It’s hard to ask those closest to you for help, but it can be a very good thing.
People will be willing to step up and help you if you ask, but you also have to show that your idea is a strong one. You’ll want to have agreements in place with your friends and family to set out expectations.
You want them to know how their money will be used and what happens should you succeed or fail.
- Strategic Partnerships
Self-funding your project or asking friends and family could create a big mess. However, partnering with someone who has the funding can be beneficial.
You bring your ideas and talents to the table, while the other person brings the financing. You’re both responsible for the project, and you both have to make decisions regarding the project. You don’t want to partner with just anyone. You want to have a partner that shares your overall vision for your project.
- Bank Loans
One of the most traditional types of financing is a bank loan. This can be a good option as long as you have good credit.
Otherwise, it can be very expensive for your business. Bad credit means that you’re likely to have a high interest rate.
On the plus side, you’ll need to present a business plan for the loan. This is good because it forces you to think through every aspect of your project. A bank only wants to make sure that you can pay your loan back. They won’t want an equity stake in your business.
On the downside, it’s still hard to get a business loan. The approval rate is 27%. That’s a record, but that also means that 73% of applicants get turned down.
- Lease Equipment
If the reason why you need financing for your project is to purchase equipment, there’s a better way to go about it.
Capital equipment leasing lets you get the equipment that you need at a price that’s affordable. Plus, you get better equipment that’s up to date with the latest technology.
- Angel or VC Investors
Startup businesses tend to look towards angel investors or venture capital funds to finance their business.
While they can get a large sum of money to get off the ground, they’ll have to trade that cash for a piece of the business. Not only that, but the investors expect to see a return on that investment. That can put added pressure on you as you get your project off the ground.
For some business owners, that’s not worth the price of admission.
- Community Grants
A startup or building project may be able to qualify for a community grant. Cities all over the country are trying to lift up areas and improve their economic viability.
In Portland, for example, there are economic grants available for up to $10,000. You will have to demonstrate how your project benefits the community.
You can show that you’re creating jobs at a living wage, or providing a service that benefits the community as a whole.
Ready to Finance Your Business Project?
It’s not easy to start a business. You need to do your homework about your industry and figure out a way to get the funding for it.
Whether your project is large or small, there are a number of types of financing you can use to get your business project off the ground. You can use your own money, ask relatives, or a combination of the two for smaller projects.
For larger projects, it’s best to use other people’s money so you don’t take on all of the risks. Banks, investors, and partnerships can be better options for those projects.
Do you want more business tips? Be sure to head over to the Business Marketing Blog for more great articles.
