Are you excited at the prospect of starting a small business? You may be itching to get on with your new venture, but without capital, you will be stopped in your tracks. To get ahead, you need to know the ways to finance your startup.
Luckily, there are several options. Read on as we discuss how to finance a small business.
The first method of small business financing is using your savings. This can also be known as bootstrapping. It has the advantage that you are not paying out loan repayments in your business’s early days, which cuts into your overheads.
The risk is that if the business does not work, you are left with nothing. Many people also do not have enough savings to start a business, so they have to part-finance it with a loan regardless.
How to Finance a Small Business With Loans
The preferred method of starting a business is with a loan. While banks have become much stricter on who and what they lend money for, they still need to hand out loans to bring in much-needed interest. They also have lots of funds specifically designated for small businesses and startups.
When applying for a loan, you need to prove to the bank they will get the money back. If you already have income streams, this will be much easier to do with a company that has very little.
Keep in mind the interest rate of your loan. You will have to start paying this back from day one of your business, so factor it into your monthly outgoings.
When you set up your small business bank account, credit cards will be one of the many financial means at your disposal. You should also aim to find an account with a business checking with perks to utilize the means available to you.
Both the business credit card and your personal one can be used for cash flow to your business. However, this can get messy when it comes to accounting and filing taxes. You should also consider the higher than average rates and their impact on your credit score if you do not repay.
Factoring is a small business financing method used by someone who already has cash flow coming in. You lend money from a factoring company, which uses the value of your receivable goods as collateral. When clients pay invoices, you pay off the loan, or the company contacts the customer directly for payment.
The benefits are that you can often use factoring even if you have a poor credit score or bank history. The downside is that it can be expensive. Some factoring companies charge fees instead of rates, which can soon eat into your small business expenses.
Consult a Professional
When wondering how to finance a small business, it helps to consult a small business advisor. They can help tweak your business plan and advise on the best financing method from an expert and professional perspective.
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