If you want to get money to start a business, there are two basic options available to you: using your own money, or using OPM, which means other people’s money. Using your own money means using savings, credit cards or loans against personal property. OPM sources include banks, credit lenders, or family and friends, and any other source outside your own assets. Since you’re starting a new business, it can be hard to convince another person to lend to you until you have a track record, so you may rely more on personal credit. Whatever way you choose, be sure to weigh the consequences in the event your business doesn’t pan out.
Below are five ways to get money to start a business. Ideally, you want to start with as little money out of pocket as possible, since burdening a new business with loans when there is no income can be very risky. Building your business out of sales and profit is the safest way, although it can be slow. Whatever way you choose, it’s best to start wit a business plan and a budget to be able to know and show others where the money will be spent and give you a roadmap for success
Here are five ways to get money for a new business:
- Build from sales. While this isn’t exciting, it’s the lowest cost way to get up and running. When your business idea takes off, you’ll be more likely to make banks comfortable that you’ve got demonstrated sales and cash flow. As you make sales, roll those profits right back into acquiring more inventory. This can mean it will take longer to build to your business, but you’re building a track record. Starting out with no debt means your business is on a secure footing from day one.
- Use home equity money or your personal credit cards to finance your business. With home values still relatively high, many individuals have used home equity loans to start a small business. Maxing out credit cards is also an option, although a risky idea. If your business idea doesn’t pan out, you now have more debt on your home and higher credit card balances to pay off. Borrow as little as you can to get your business off the ground, and as soon as you get a traditional business loan from a bank, be sure to pay off the home loan.
- Borrow from friends or family. This is a classic strategy but can end in tragedy as easily as success. With friends or family as backers, you can expect a lot of input into how your business is run. It can also cause bad feelings and damaged relationships if your business does not work out.
- Get credit extended to you from your vendors. Many vendors will agree to 30, 60 or 90 days payment terms, meaning you have a few months to gain sales before paying for inventory. Generally you may have to complete a credit application, but vendors may be more likely to extend credit since they are hopefully making a sale and getting a new long term client. Not sure if your vendor will accept terms? Just ask. This is a great way to stretch your financial resource.
- Obtain a small business loan or unsecured line of credit from a bank. Banks can be hard to work with to get small business loans, especially startup loans. If you have a good relationship with your banker and a very good business plan, you may be able to get a loan secured by other assets, such as your home or other investment property. A line of credit can be a good alternative, since you only have to use as much credit as you need, and can start with a small amount of credit, with increases in your credit line as your business grows. If you’ve formed a corporation, expect to also sign any documents personally, since banks won’t take the risk that your corporation will go bankrupt leaving them holding an uncollectible loan. This method will surely help you increase your chances of establishing quality business. You may even have a chance to invest in top 5 CRM software for small business in 2020. You need to get enough money so all the necessary technologies needed in your business will be considered.
There are additional ways to get money to start a business, but the above ideas are a good way to get started. One or more of these can work for you to get your idea going and growing.