Six Methods of Financing a Business Endeavor
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According to the research group the Global Entrepreneurship Monitor, the average start up cost for a new business in the United States is $70,200.
This article discusses six methods by which an individual can obtain financing for a new business they wish to start. The methods include personal assets, family members and friends, credit cards, peer-to-peer lending, United States Small Business Administration.This article discusses six methods by which an individual can obtain financing for a new business they wish to start. The methods include personal assets, family members and friends, credit cards, peer-to-peer lending, United States Small Business Administration.
You have made the decision to go from a nine to five job to your own business. Or perhaps your company was downsizing and you ended up one of the unfortunate employees who were shown the door. Regardless of what the case was, the reality of starting a new business is that it requires money to start.
Source: The Wall Street Journal (http://online.wsj.com)
Consumer Reports has come up with six methods by which you can find the money you need to fund your dream business:
# 1- Personal Assets
If you have been smart over the years and have saved your money, then this might be the route to take for funding. Money that you presently have in a bank account, brokerage account, or money-market fund is money that you can get access to very easily. You do not have to worry about paying any fees or interest in order to get your hands on the money. On the other hand, if you were saving your money for your kid’s education, a down payment on a new home, or for your retirement, you might want to proceed with caution. To prevent yourself from draining all of your hard earned funds, create a limit for yourself on how much money you will allocate to your new business and then make sure you follow through.
# 2- Home Equity
In most cases, if you want to get a line of credit from the bank or a home-equity loan, this should not be too difficult or too costly, provided you have good credit. In the case of a line of credit, the terms are flexible in that you take what you need when you need it and leave the rest. A home-equity loan, on the other hand, is based on a fixed schedule. Home-equity loans tend to have lower interest rate in relation to other types of loans. The down side to this is that if your business does not succeed, then you put your home at risk.
# 3- Family Members and Friends
People who know you and love you might be willing to lend you the money you need, but this is a personal that you might not be willing to take. If you run into problems with paying the money back, this can cause strained relations with the person or people involved. If you decided to go this route, then make your loved ones aware of the risks. Write up a formal contract or agreement and have both parties sign it. It would also be wise to write up a payment schedule that is fair to you both.
# 4- Credit Cards
If you have a high credit limit, then you can borrow money from your credit card to get your business up and running. However, this can be an expensive method due to high interest rates. If you are confident that you can make it work, then your credit card is a viable method of funding.
# 5- Peer-to-Peer Lending
Another option is to visit one of the websites that helps connect borrowers to lenders. Examples of these include LendingClub.com and Prosper.com. The former bases the rate of the loan on the potential borrower’s credit rating. The latter is open to negotiation between the two parties, while the borrower can set the maximum that he or she is able to pay. These types of companies provide all of the paperwork to the lender and are responsible for setting up the loan repayment terms.
# 6- United States Small Business Administration
This is an agency that is run at the federal level and offers a number of different kinds of loans for those wishing to start small businesses. For example, a basic SBA 7 (a) loan is available to commercial lenders and can be as high as two million dollars. SBA Express loans are another type and these can go as high as $350,000. The good thing about these types of loans is that the prospective borrower can be approved in as short a period of time as 36 hours.
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Disclaimer: Ideawala.com does not recommend or endorse the products or services mentioned by the authors. We have not verified authors' credentials. We do not guarantee the accuracy of the information in the article or the earnings claims. Nothing in this article should be construed as business, legal or tax advice. Please consult a professional business advisor, an attorney or an account for specific advice in your situation.
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