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Proper business financing is often an essential part of growing a business. It can help improve your cash flow, venture into new opportunities, expand your business or hold on during tough times. There are several options from which you can source funds from, but there’s always a catch. Not all these options will suit your unique goals.
We’ve highlighted the five most practical ways of financing your small business. Hopefully, you’ll find one that aligns with your business model and nurtures your entrepreneurial pathway to success.
1. Bootstrapping
Bootstrapping is a financial term that means building and financing your business from your own pockets. It’s probably the most common way of sourcing capital if you’re willing to risk your own money.
You can dig into your savings account or liquidate an asset. One advantage of bootstrapping is that you won’t have to give up a part of your business or even commit to paying high-interest loans.
You’ll also be motivated to make the business work since you’ll have probably spent all your savings. The disadvantage is that if the business fails to break even, you’ll have to cope with some financial challenges.
2. Taking a bank loan
If you qualify for a bank loan, it is an excellent way to finance your business. The trick here is to use debt to make more money to pay off the interest and still have something left to run the business operations.
3. Merchant Cash Advance
Sometimes the banks are slow in processing the loans, or maybe your credit score isn’t that impressive. This is when you’ll have to find other quick alternatives to finance your business. Merchant Cash Advance is a fast way to access capital and comes with flexible repayment terms. One disadvantage is the high-interest rates, which could make it challenging to manage your business’s future cash flow.
4. Finding an investor
You’ll have to have a good business idea to attract the right angel investors. If you’re lucky to get one, always weigh the options and see if their business proposal is healthy for you and your business.
The good thing here is that you’re using someone else’s money, and if things don’t work out, you’ve got a bit of cushion. You can also find a mentor who’s been through where you want to be. It’s motivating to know that someone else has got your back in business.
5. Crowdfunding
Crowdfunding is where SMB ventures, entrepreneurs, and start-ups raise capital through peer networks, often via the internet. There are several ways to raise funds using crowdfunding, from donations, pre-order models to equity-based crowdfunding.
It’s one of the most effective methods if your business seeks to solve a complex and common problem in society. Leveraging the power of social media and the internet makes this more realistic and results-oriented.
Conclusion
Raising funds to finance your small business may seem like an impossibility, especially for new entrepreneurs. But you have several methods at your disposal, but finding the right method can take some work. The above tips will point you in the right direction.
