Are you thinking of starting your own business? Have you finally drafted a business plan to actualize your idea? According to the Bureau Labor of Statistics, 20% of companies fail in the first year. You don’t want to start a business, and then it fails within the first year, after all the sacrifices that come with the process.
A business needs proper financial management for it to run. Some of the reasons why most entrepreneurs fail are due to lack of enough finances, not enough marketing, not knowing your market, among other things.
Finances are an integral part of the business. When starting out, you need to figure out where to get your capital. Sometimes, you may have put some money aside for your business, but it may not be enough for you to start operating. You can opt for business loans. Before even taking out loans, you should consider the following:
- Know if there is any upfront cash required
- If the lender requires any personal guarantee
- If there is any equity you may have to give out and if so, how much?
- How much you will end up paying in the long run
1. Peer to peer lending
One of the options of getting funds is through peer to peer lending (P2P). These are online platforms that match lenders to borrowers at an agreed rate. Some offer personal loans as well as business loans.
Before going for this option, consider the interest rate; is it fixed or variable? Your credit score is another thing to consider. Is it poor, good, or average?
Before going for any loan, you need to ensure your credit rating is okay as it gives you bargaining power when it comes to interest rates.
Platforms such as LendingClub, Prosper, Peerform, SoFi, etc. are examples of P2P lending companies.
2. Angel investors
An angel investor is somebody who comes in and gives you the capital you need in exchange for equity. Unlike venture capitalists who are mostly companies, angel investors are usually willing to invest in startups without even proven profit records; they invest in the idea.
In the case they are an expert in your industry, they will guide and assist you along the way. So, you just don’t get the money, but also their expertise comes into play. Getting an angel investor for your business is also an option for getting funding.
3. Invoice factoring
Invoice factoring is where you sell your invoices to a third party (factor.) What you do is sell your unpaid invoices to the factoring company, and they fund you 90% of the total invoice amount on the same day.
Your customers will then make the payments directly to the factoring company. Once the company receives the amount, they will then return the balance minus an agreed fee which depends on the agreement.
This is a great option if you’ve already started your business.
4. Nonprofit microloans
If you are a business owner with low capital requirements, then this option could be great for you. Nonprofit microloans are short term loans with very low-interest rates.
Microloans range from $500 to $50,000 depending on the organization. Your credit score comes into play here. Make sure you clean it up so that you are eligible. There are various ways of improving your credit score, such as ensuring timely payments for your credit cards or any other debts you have.
5. Partner financing
This type of funding is where you get another player in your industry and become partners in exchange for some of your products, distribution sales, or any other thing you agree on.
The other company that comes in maybe a big company that has its already existing clients. Such kind of funding could work in your favor because you can tap into that market, especially if what you are offering is in line with the other company.
For you to increase the chances of qualifying for a startup loan, you need to have your credit score right, have a detailed business plan, and have some funds saved. Get various funding options and choose what’s favorable to you and the business.