If you’re looking to run your own business and be your own boss, here are some simple yet smart solutions to help you fund your business.
There is nothing like running your own business. If we must say, it’s quite a soul-satisfying experience. It starts with a small idea—perhaps you thought of it while stuck in a traffic-jam—and after months of hard work and sleepless nights, your idea starts taking shape. Your business, though small initially, starts growing and gains an identity. Thrilling, isn’t it? And it feels even better knowing that you created it.
Now, if you want to see your business grow and get better with time then you must give it enough financial fuel as and when it needs it. Of course, at one point your business will be self-sufficient and getting loans will be easier. But before it reaches that stage you need to think about the different ways through which you can fund your business.
This is an important question that must be answered because there is nothing more horrible than having to pull the brakes hard when the engine is running full steam. Sometimes funding solutions are right under your nose and you might miss them.
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So, without further ado, here are some simple yet smart solutions to help you fund your business.
1. Self Funding
Yes, why not? Relying on yourself is the best financial security you can provide to your business. Starting a business is somewhat akin to buying a home – both are expensive affairs. But, just like you save up for your house, save up for your business.
We are not asking you to save every single penny you earn, but at least a sizeable chunk. You can either use this as seed money or choose to keep it aside for rainy days if your business comes face to face with a financial crunch.
Yes, you can always choose to fund your business end-to-end, but this has a downside. If your business gets canned, so will your money. There will be little you can do to salvage your hard-earned cash. In case of a business loan, you can claim bankruptcy—only if it is so—and cushion the downfall.
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Use That Emergency Fund
Why do you have an emergency fund? So you can use it in emergencies. Moreover, not all business financial needs are the size of a mammoth. Sometimes you just need a little something to tide you over to better days or till that delayed business order comes in.
In such cases, you can quickly get yourself out of a mucky situation by tapping into your emergency fund or savings. Just remember to replenish your savings once better days come around. Businesses tend to follow a roller-coaster ride. You might be in need of funding again sometime in the future.
Businesses can get demanding at times, especially financially. It’s amazing if you can get a loan to meet the needs of your business. But, what if you can’t and the need is pressing? You can look at selling your assets. This method to raise funds has stood the test of time and has been particularly helpful to meet the financial needs of traditional business people.
Selling assets doesn’t always mean parting with your ancestral house. You can sell your cars, stocks, or a piece of real estate you had bought for investment purposes. All these options fetch a good price and will help you fund your business.
However, if you are selling assets you must be wary of tax on capital gains. But there is a good side too. Since you are willing to sacrifice your personal assets, investors may step forward to help you out.
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Pull Out Your Credit Card
A business is not just made up of big expenses. There are many small expenses that go towards making your business a success. Now, which office can do without stationery and some basic furniture? You can always take a loan to fund these smaller purchases but did you think about using your Credit Card for it?
You know that Credit Cards are packed with amazing rewards and cashback programs, right? Use it to buy the smaller tit-bits for your office/business. You can always break up some of your bigger expenses into smaller EMIs and pay it over time. Do not overlook the benefit of using a Credit Card when shopping for your business.
2. Loan Against Your Home
Your home is the biggest asset you will ever have. It provides you with security and shelter in times of need. Did you know that you can raise money for your business against the security of your home?
Since your home works as collateral you might bag a discount on the interest rate. So, if you are going the loan way and own a house the do tell the lenders about it. They will cut you amazing deals.
3. Business Loans
There are all kinds of business loans available to entrepreneurs today. While one might think that getting a business loan is a tedious process, it is in fact quite streamlined.
Moreover, the plethora of offerings is just convenient. You can apply for a loan based on the size of your business—small or medium—and even choose the financial institution you want to approach. It could be government funding or lending from a private bank.
4. Venture Capitalists
In many ways venture capitalists are the backbone of the start-up culture. Without their deep pockets, many great business ideas wouldn’t have taken off or morphed into flourishing companies. So, who are these venture capitalists? In simple terms, these are people with a lot of money. They invest in start-ups in exchange for an equity stake.
However, it isn’t easy to get money out of venture capitalists. They are careful about where they invest their money. Often, they invest in an established start-up which has a proven, successful business model. It might be difficult to get funding from a VC for an entirely new business idea which still needs to prove its merit.
However, if you have a solid business plan and can prove that your business can disrupt the market, well, then you might get the funding you seek.
5. Angel Investors
Heard stories of rich uncles and aunts leaving behind an envious financial legacy for their nieces and nephews? Well, these stories are true. But not all of us are lucky to have Scrooge McDuck for an uncle so we rely on angels to help us. Not the glowing ones from heaven donning wings, but the ones who sit in suits looking to grab the next best investment opportunity.
How are angel investors different from VCs?
Well, both provide money to fledgeling companies to run the show but on very different scales. VCs make large scale funding, while angel investors make small (nevertheless still valuable and sizeable) funding. VCs study a lot of data to determine the feasibility of a business model before giving the green signal.
Angel Investors, on the other hand, have had luck with companies in a given sector and are willing to give such investments another shot. Lastly, VCs are out there in the market like those big hoardings you cannot miss. Angel investors are kind of coy. You need to look for them and spotting them might really be via reference within the business circle. But, angel investors can be of immense financial help when VCs turn away.
6. Crowd Funding
Crowdfunding via the internet has gained immense popularity in the last few years as a way of raising money for new businesses. Essentially, crowdfunding is making an appeal for cash on a public platform. You share your ideas/business plan with people who can choose to invest in your business. Heard of Kickstarter? Check it out to get a feel of how crowdfunding works.
But before you dive into crowdfunding, learn the rules. Some crowdfunding platforms hold the funds until your business meets certain goals. If you fail to meet your goals, the money is returned to the respective donors. Also, you might not be giving your investors a stake in your company but might have to give away some freebies.
No matter how and from whom you raise money for your business, you need to prove its worth and merit.
7. Peer-to-Peer Loans
How about making crowdfunding a little more organised and cool? Try peer-to-peer loans. It’s the same as crowdfunding. You put up a request for a loan along with the reason on a peer-to-peer website. This is seen and evaluated by potential investors who decide whether to fund your venture or not.
Lending Club is an example of a peer-to-peer platform. How do you repay the loan? Pretty much like you repay your other loans. You repay it in instalments. Banks and other financial institutions aren’t the only lenders today. World financial markets are at an all-time high. This coupled with technological advancements and power of the internet has helped open up a world of opportunities for the new entrepreneurs.
You have a grand idea keeping you awake at nights. But you are falling short on experience and funding. You know what to do but not how to go about it. Don’t you wish that someone could handhold you through this phase? Wish granted! Have you heard of business incubators?
Business incubators are organisations which provide support in all forms to fledgeling companies. They provide help from money to management and strategising. Who runs these business incubators? It’s run by government agencies, B-schools and universities, venture capitalists – anyone with the skill and resources to set-up and run a business through and through.
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These are the many options you have to raise funds for your business. Remember, unless you are from the Rockefeller family or a serial entrepreneur, you need a lot of focus and skill to run a business.
Make sure you spend time on research and charting out your business goals. In short, you should be able to explain to your investors why you need the money, how you’re going to use it and what returns you’re expecting.