Getting a business up and running requires a lot of struggle and dedication. It is always a mountainous task for entrepreneurs to get enough capital for their business. Small business loans especially, are very hard to get. With zero credit score, and no revenue, no lender would be willing to loan start-up thousands of dollars. The risk is just too big.
It is possible to have a great business idea that will pick up fast once launched, but the simple fact that it is yet to launch will prevent you from getting finance from accredited sources.
Taking this into account, here are several places that could prove to be very helpful when you are trying to find capital to start your brand new business.
Borrowing money from friends and family is one of the most common way people use to get funds. They are easier to convince because they know you and share your vision. However, if you have bad credit, you may need to do a lot more convincing to make them believe that you will pay them back.
The biggest disadvantage however, is that the possible cost of failure does not only pertain to finances. It gets personal too.
It is therefore better to choose a list of family friends who share the same vision and mission, and are comfortable with the amount of risk involved.
Credit cards is another common way of funding business start-ups. However, it you do not have an impeccable credit score, you may realize that you are limited to secured business loans which usually have higher rates than normal credit cards.
Note however, that credit cards are a very expensive means of financing your business start-up when compared to other forms of funding.
The Small Business Administration agency in the US offers small businesses and start-ups loans to get them off the ground through its microloan program. On average, the size of the microloan is $13,000 and this may not be enough for most borrowers.
These microloans are excellent for entrepreneurs with little capital, but the major downside is that getting them is quite tough. Established businesses that have the ability to offer collateral for the loan end up getting most of the funding.
The SBA also has strict qualification rules and even after qualification, loan processing can still take months.
Better alternatives to the US SBA agency are nonprofit lenders and microlenders, especially if you have unstable finances. These mostly favor businesses in areas that face economic challenges, and also small businesses that are traditionally disadvantaged.
These lenders can be a great help when seeking finances to get your business off the ground and can help grow your creditworthiness. With time, you will be able to qualify for other types of financing from bigger lenders.
Personal loans are another way new entrepreneurs get funding for their businesses. There is a growing number of online lenders that offer personal loans but the disadvantage with this approach is that they have a very high Annual Percentage Rate of charge (APR), especially of you have bad credit.
Personal loans are therefore best used as a last resort when everything else fails. They are also great for times a business only needs a small amount of money to get something done fast.
This is a new, but now very popular for start-ups to raise money to get them started. It lets you request from funding from like-minded people through online campaigns. The best part about it is that instead of paying back the money, you give your donors gifts. This has led to this system being called rewards crowdfunding. Some popular crowdfunding sites are Kickstarter and indiegogo.
Equity crowdfunding is a new type of crowdfunding opening to new business owners. It works by allowing you to tap into a pool of investors who will finance your business in exchange for equity. New security regulations added recently make it possible for business owners to link up with individuals interested in the business, not just accredited investors.
If you have a product that you want are confident about and want to test the market, crowd funding can prove to be a great opportunity.
Government agencies and private foundations also periodically give out grants that are a great way of raising money to start your business. While they are not easy to get, this is free capital and completely worth the hard work that goes it getting qualified.
For example, people who have served in the United States Military can access small business grants for veterans.
While this is not a complete list of places you can source for funding to begin your business, these are some of the best and most common places people normally look for. Go for two or three of these and we are confident you will have enough to get you started and help build your credit history.
