Planning and starting a new business is often difficult and you will likely need to find sources to finance your startup business. Most of the time, people find the process quite frustrating and very exhausting. One of the reasons people suffer is because of the blend of imprecise assumptions and looking for financial sources in all the wrong places.
One important strategy of starting a new business is to never put all your eggs in one basket. To be a good entrepreneur, it is necessary for you to understand which financial source is best for your business. Here is a list of top 6 sources of finance that will enable you to start your new business.
Finance from Your Own Capital
Starting a new business involves risks. You can finance your new business from the capital in your savings account. This is one of the ideal sources of finance. In this way, you will be able to take complete control of the financial transaction of your business.
You will also be able to convince other investors of your business venture better if you have staked your own funds. If you are still in the planning process and you plan to quit your job soon, start saving from now on. Save a small chunk of your salary every month.
You may also have to concede some of the luxuries in your life which includes a vacation to exotic places, purchasing latest gadgets, buying new cars and much more. Patience is a virtue and your patience will enable you to establish your new business.
Informal loans from your friends and family:
It is important for you to communicate with your close friends and family before you plan to start your business. Your friends and your relatives can be one- off investors for your new business. According to various researchers and finance experts, in each one in three business ventures, the financial investment is from the friends and family of the entrepreneur than from angel investors. It is true that it can be dismaying for you to ask your friends and family for loans but you will need to have a little faith in yourself and on them. It is necessary for you to take this leap of faith. You can also present them your business plan and the risks that are needed to be taken.
One of the best way to ask for a loan is to leave them with a promissory note by affirming the terms of repayment. On the other hand, you can also provide them with straight- up equity. In many countries, the two parties are also required to comply with risk- acknowledgment and sign an agreement. Startup businesses are often risky and your family or your friends and even you may not be experienced in this matter. That is why it also wise to set up this agreement with a lawyer who will be able to audit the required documents to finalize the loan agreement.
Home equity and your credit:
Home equity is another source finance for your new business. Home equity enables you to loan money by using your equity of home as collateral. Due to collateral, you will be able to come to an official agreement that you will repay the loan within a certain time and if you are unable to pay back the loan then the moneylender will be able to sell your home in order to receive the money back. It is true that this is a risky process but there are some guidelines that you and the moneylender have to comply with.
Crowdfunding has gained a lot of popularity for past few years. You may wonder how crowdfunding works. At first, you will need to set up precise and complete information about your startup business on the crowdfunding platform. You will need to state the objectives and the purpose of your business along with how much profit you want to make yearly or monthly, why did you start this specific business and much more and if your client or the consumer likes the idea of your business venture, he or she will provide you with the funding. This is one platform where anyone can contribute their capital for your business. One of the best thing about crowdfunding is that it will also enable you to promote your business in the market. If your product is in demand, then you do not even have to look for professional business investors, the consumers will be happy to oblige you with the funding for your new business.
Acquire venture capital:
Venture capital is licensed funds that invest in the startup business that shows tremendous potential. Generally, they invest in a business that provides equity and they can exit whenever there is an attainment. Venture capital will also provide you with the expertise, consultancy for a startup business, assess that business from sustainability and extensible outlook of the business. Venture capitals are best for small business ventures. Many global companies such as Uber, Flipkart and much more has started their business through venture capital.
Finance from your retirement fund:
If you are over 50, retired from your job and planning to start a new business, then you can take some portion of your retirement money and invest in your business. But before you do that, it is absolutely necessary for you to consult with your friends and family about your plan. Along with that, you must also seek professional consultancy from professional lawyers and accountants. They will help you to understand the strategy on how to start the business and the risks you will need to take. Sometimes it might seem appealing to invest in your business by using funds from your retirement money, but you will also need to remain caution.