If you have a great idea for a new business, the last thing that you want is lack of funding to stop you from opening your company and being successful. But as a new business or even before you are actually operating the business, it can be very difficult to get a traditional loan from a bank. Many entrepreneurs attempt to fund a startup with personal money from savings, credit card cash advances or a line of credit.
But not everyone has access to enough money to get a company started and remain operational until revenue starts to come in. The good news is that there are several types of alternative business funding that can be procured to help you turn your dream business into a reality.
Find Your Angel
Angel investors are individuals who invest in small businesses and startups in exchange for a percentage of ownership in the company. In most cases the investor does not require that they have an active role in the company’s day to day operation or that they have a seat on the board of directors. But what they do demand is an understanding of the business and its potential for growth and profitability in the future.
Often times, a small business owner will meet with the angel investor and deliver a presentation much like they would for any other investor and then answer any questions that the investor has about the company, any processes or policies critical to the business. But where this scenario differs from other types of investor is that once the presentation is complete, the response time is very short. Because a single person is deciding whether or not to invest instead of an entire board, the process can be completed very rapidly and efficiently. This makes angel investors even more appealing to start-up businesses.
Appeal to the Crowd
Crowdfunding is a growing resource that many small business owners are using. For this process, the owner goes to a website such as Kickstarter or Indiegogo and completes their application for funding. The premise is that even small contributions will add up to a very useful amount of money if you have a broad enough reach with your request. There are a few key pieces of information to know before you decide to try crowd funding.
First, read all of the fine print so you understand exactly how the site you selected works. Not all sites have the same rules and guidelines. Second, be sure to provide a well thought out and effective business idea and operational plan. You need to be able to convince contributors that you have an idea that will work as well as a plan to market it and make it profitable. It also helps to include a little bit of personal information to connect with potential donors. Share your vision, your excitement and your enthusiasm to sell your idea and grab and investor’s interest.
Factoring for Cash Flow
This is a process that is known by several different names but they all mean pretty much the same thing. It can be called a cash flow loan, factoring or an invoice advance. What the process really does is loan you money against the invoices that you have already billed out or that you have projected that you will bill out in the coming months. The money allows a small business to pay for its material and labor costs without having to wait for the actual invoice to be paid by the customer, similar to a title loan with no job or a title loan with no inspection.
This is great for industries which normally offer their customers longer terms to pay such as 45 or 60 days. It allows suppliers to be paid without incurring any late fees or finance charges and it keeps your business in good standing with your suppliers. This process is also very helpful for industries which hold longer contract time frames.
Materials must be purchased at the start of a project but some projects can last for many months before payments are made. It can be nearly impossible for a small business to absorb or carry the cost of the materials for that long a time period, but a cash flow advance offers the perfect solution. Invoice advances are also very useful if you are in a position to grow your business but need to invest in additional labor, equipment or materials to make the growth possible.
Getting an advance on the work that you have completed but is not paid by your customers allows you to reinvest money more quickly in your business. It also eliminates the need to call customers to request payments early. That can result in your business looking unstable and can result in a bad or questionable reputation with consumers, suppliers and throughout your industry.
Not a Loan at All
Another solution to funding your new business is applying for a grant. Many government agencies offer grants to startups and small business. In addition certain banks and nonprofit organizations offer grants to foster new business growth in a specific geographic area or even in specific business fields. An additional benefit is that most grant money does not need to be repaid. Because of this huge benefit, grants are always in great demand and might be difficult to find for you specific needs. But it is always worth spending a small amount of time exploring the option.
You Have Many Options
With a great idea and a well thought out business plan, you are well on your way to owning your own business. But finding a way to bridge the time between opening the doors and cashing the first checks can be difficult if you have not prepared for the challenge. Investing your personal money ensures that you will maintain full ownership of the business and will also reap all of the rewards of your hard work.
But if you need to look outside your own wallet, then crowdfunding could be your solution. You maintain full ownership but get a huge number of small investments from your supporters. For a larger investment, seeking out an angel investor is a faster and more streamlined process than other investor options.
This might mean relinquishing a part of the ownership to another person, but it could also get you the cash that you need in a very short time. What really is the most important factor is that you understand that there are many alternative business funding options out there and for you to select the one that will best suit your needs to build a successful business.
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