How to Finance a New Business

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Many people spend years dreaming of running their own successful business like Sukanto Tanoto. They have an idea and some experience, but they know that financing their dreams is hard. Unless you come from a wealthy family, you likely don’t have the funds needed to open that company. Even running a smaller business can still cost you a significant amount of money that you might not have until your company launches. Before you give up on your dreams, find out how you can finance your new business.

Small Business Loans and Grants

One of the first places that you should look for help is through the Small Business Administration. Also known as the SBA, this is a government organization that helps companies of various sizes. You can apply for both loans and grants. Grants are often available to minority business owners and let them start out without worrying about how they’ll pay back the funds later. If you qualify for a loan, the SBA will guarantee your loan with your lender. This can help those with lower credit ratings and scores qualify for loans with lower interest rates.

Family and Friends

If you have a large network of family and friends, why not ask them for help? You can give your loved ones the chance to buy into your company before it gets off the ground. While you still retain majority ownership in that business, everyone who donates will receive a small portion of your company. Many entrepreneurs in the world today found success after borrowing money from family and friends. Make things as official as possible. Each person should receive a contract that shows the ownership he or she has or when you will pay back the money you borrow with any interest charged.

Peer to Peer Lending

Peer to peer lending is a good option for those who need only a small amount of additional funds. Unlike banks that look at your credit score and want copies of your financial documents, peer lending sites let you explain how much you need and why you want the money. Others can read through your information and give you the entire amount needed. The money will then go right into your bank account. Angel lending is slightly similar. With angel lending, you agree to turn over a portion of your company in exchange for a loan from an unknown person.

Crowd Funding

When most people think of crowd funding, they think about Kickstarter. While there are other websites out there, Kickstarter is one of the most popular. These websites can help borrowers raise a large amount of money but that the sites do charge a percentage of the total amount raised as a fee for using the site. Most campaigns succeed because companies offer those who donate some type of prize. You can create different levels and award those who donate different things based on the amount that they give you.

If you have good credit and have built up a lot of equity, more traditional bank loans are, of course, an option. Taking out a home equity loan or business loan can be a good option for a person in such a position. However, as you can see, borrowing from a bank is far from your only option when opening a new business. You can use crowd funding and peer to peer lending sites to get money from others, or you can borrow from family and friends. The SBA may also have loans and grants that can help you make your dream a reality.
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