Getting your business funded in the present volatile economy can be pretty challenging. Whether you are looking got an angel investor, bank financing to launch a startup, or capital to expand your business, securing funds might need you dig deep and understand different options that are suitable for your business.
The good news is that today entrepreneurs have a plethora of options to choose from when it comes to funding. There are many types of funding opportunities that you can explore on the basis of different angles of your business and your future goals. The trick is to analyze what goes best with your goals to make sure you start your business off on the right foot.
In this post, we’ll explore four most popular options that you can use to fund your startup.
Peer to Peer Sites
If you are a startup with less than 2 years in operations and unable to get a bank loan, then peer to peer websites can be a good way to raise funds for your business. These websites allow you to borrow up to $35,000 from strangers just by sharing your idea with them. Websites like LendingClub and Prosper provide small business loans. Here are some important points to consider when raising funds from for peer-to-peer lending:
- Credit rating of >600 to quality
- Expect to pay between 12-25% annually, depending on the length of your loan term.
- Your credit score is at stake if you aren’t able to pay back
- Most websites charge 2-5% origination fee, taken upfront
This is one of the most famous sources of startup funds for entrepreneurs these days. There are plenty of crowdfunding platforms such as Indiegogo and Kickstarter, that you can refer to. All you have to do is pitch your idea for public display and interested people by their own will can either contribute in your idea or encourage others to.
However, every website has its own terms and conditions. Make sure you investigate the details related to the sites to avoid any disputes in the future. Also, remember that this is a competitive place and you’ll have to write a pitch that’s not only compelling but absolutely rock solid to gain the right attention.
If you don’t have a good credit history, getting a loan from financial institutions and banks is not even an option for you. In this case, you can always apply for microloans. Microloans can provide you quick capital to launch your startups. Microloans offer small loan sizes ranging from l v.i.z $500 to $30,000. These usually require less documentation and have more flexible underwriting criteria. This type of loan option is ideal for small business owners operating micro-enterprises, i.e businesses with less than five employees and are unable to borrow money from conventional banks
“Microloans are really for those entrepreneurs facing a capital gap and need funds for new equipment or to service a contract,” says Connie Evans, president of AEO.
The Bottom Line
Although there are plenty of ways to secure funds to get your business up-and-running, it is imperative to have a well-written business plan with accurate financial forecasting that you can present to your lender. Small businesses and startups must develop their pro forma financial statements for set time periods (either six months or one year). Sets of pro forma financial statements for three or five years are often developed for investors’ analysis when seeking funds.
Do your research, weigh your options, and then find the right way to fund your business idea until you have enough money to work on your goals.