There’s a lot that goes into getting a business project off the ground. However, the most challenging aspect has to be obtaining financing. After all, money doesn’t grow on trees.
Nonetheless, obtaining financing is possible. Need a little help getting your hands on startup funds? Here are 6 beginner tips on financing projects for businesses.
1. Ask Those Closest to You
A good place to start is by asking for financing from those closest to you. Your mom, dad, brother, sister, aunt, uncle, friend, or some other loved one might be willing to front some money for your business.
Note, though, that this can be risky, particularly if they’re expecting something in return. After all, if your project doesn’t work out, you won’t have any monetary return. This could end up causing a rift between you and someone important in your life.
As such, you’re only advised to ask those who don’t expect anything in return. And only take a small amount from any one person. After all, you don’t want to turn your close friends and loved ones into your debt collectors.
If your project is relatively inexpensive, you could try crowdfunding. This is a form of financing wherein you ask for donations from funders online. It occurs through websites such as Kickstarter.
Let’s say you get a $10 donation from 50 different people. You’ll have made $500 to spend on your project.
To attract funders, you could consider offering up rewards. For instance, you could promise to give your product to any funder who funds over $25.
Crowdfunding isn’t likely to launch an entire business. However, it will add contributions to the pot. And in the infancy stage of a business, any amount of funding is vital.
3. Take Advantage of Your 401(K)
If you’ve contributed to a 401(K) in the past, you could consider drawing from it as a means of financing your business. Note, though, that this can be risky . . . if not done the right way. After all, there’s a fairly substantial fee associated with early retirement withdrawals . . . unless, of course, you use the right withdrawal method.
See, there are ways for budding business owners to withdraw money from their 401(K)s without having to pay fees or taxes. That said, they’re far too complex to discuss within this article. As such, if you’re thinking about withdrawing money from your 401(K), you’re advised to speak with a business lawyer.
In any case, it’s important to remember that this is your retirement fund. So, if your business venture doesn’t work out, you’ll have lost a great deal of your savings. Think it through carefully.
4. Find an Angel Investor
If your project is particularly special, you might be able to obtain financing from an angel investor. Angel investors are affluent individuals who provide worthwhile businesses with startup capital. In return, they receive either stock in the business or a portion of the business’ profits.
Finding an angel investor is not easy. However, it is possible.
The most convenient method is to search online. There are a number of sites at which budding businesses can find such investors. These include Gust.com, USAngelInvestors.com, and AngelInvestmentNetwork.org, to name just a few.
However, if you really want to increase your chances of obtaining funding, you need to meet investors in-person. Your best bet is to attend events that are specific to your industry. While there, you might be able to strike up a relationship with an investor.
Note, unless you have the greatest idea of all-time, this isn’t going to be easy (it will probably be difficult regardless). Finding an angel investor is hard work. The key is to get yourself out there and meet as many people in your industry as possible.
5. Take Advantage of Factoring
If your business is already established, you can take advantage of factoring. This is a form of financing wherein you submit portions of your unpaid invoices in exchange for money. This is a solid method for companies with bad credit, in particular.
6. Use a Credit Card
If you only need to pay small expenses, you might consider using a credit card. Be careful, however, as credit cards carry extremely high interest rates (between 16% and 30%, depending on your credit score). As such, if you aren’t able to make payments in a timely manner, you could fall into a financial hole.
If you are going to use a credit card, you’re advised to use one with a 0% APR intro period. Credit cards with these intro periods will charge no interest for the first 12 months of their use, or 15 months of their use, or 18 months of their use, depending on their specific terms.
Note, though, that once the intro period has ended, interest will be charged as usual. So you had better make sure that you can get everything paid off prior to it ending.
7. Obtain a Bank Loan
While it’s not the ideal way to obtain financing for a business, you do have the option to obtain a bank loan. Depending on the size and nature of your business, you could obtain anywhere from a few thousand to a few million dollars.
The obvious downside, however, is that your loan will be subjected to interest. The interest rates on business loans fluctuate between 4% and 6%. Depending on the size of your loan, that can end up being a pretty sizable chunk of money.
As such, obtaining a bank loan should be seen as a last resort. If you do opt to do it, you should only take out what you need. Otherwise, you could end up getting buried in debt.
Unable to snag a bank loan? If so, you might consider trying for an SBA loan instead. These are loans provided to small businesses by the U.S. Small Business Administration.
Financing Projects for Businesses Is Possible
While not necessarily easy, financing projects for businesses is possible. By utilizing the tips reviewed above, you give yourself a good chance at snagging valuable funding. Looking for other business tips? You can find them right here on our website. Take a look at our other articles now!