Starting Your Own Business? 4 Things to Know About Your Financing Options

It can sometimes be a challenge in any financial climate for a new business owner to secure the funding he or she needs. In present times, it can become especially difficult to secure adequate funding for your business. This does not mean, however, that sources are not available for you to secure the business funding you need.

The four financing options below are great choices for entrepreneurs in search of operating capital for their business.

Angel Investing

Angel investors provide working capital for start-ups in their early stages that are deemed to be promising by the angel investor. In most cases, the angel investor will require a share of the equity in a business in return for their generosity.

Entrepreneurs who favor angel investors over other sources of business financing do so for a number of reasons. One of these reasons is how quick the approval process can be. This is because angel investors use their own money and there is no need for sign-offs from banks or other institutions. A second benefit is that advice and expertise can often be provided by the angel investor due to the fact they usually invest in industries in which they are knowledgeable. (Source: https://blogs.constantcontact.com/angel-investing/)

Loans

Traditional business loans are still a great way to fund the operations of your business. Many entrepreneurs prefer this approach to funding their business due to the many lending sources available and access to one on one customer service. However, you should know how the CECL affects your loan options if you want to proceed with this route.

Current Expected Credit Losses is a change in the rules of accounting that will affect the price and availability of credit. The rule change specifically alters the way banks and financial institutions put money aside for potential losses from loans. CECL is expected to cause banks to favor commercial loans with shorter terms. It is also expected to increase the interest rates on loans with longer terms. (Source: https://www.visibleequity.com/blog/qualitative-and-environmental-qe-factors-in-cecl)

Crowdfunding

Many business owners have found crowdfunding to be a fun and effective method to secure the financing needed for low to moderate cost projects. Crowdfunding sites allow you to set a goal for the money you want to raise and the amount of time you want to run the crowdfunding campaign. The money to fund your project is then pledged by family, friends, and strangers who think highly of your project.

Contributors to crowdfunding projects are usually offered inexpensive incentives in return for their pledge. Crowdfunding platforms are popular with contributors and more than 100,000 people have contributed to projects. (Source: https://blog.hubspot.com/sales/crowdfunding-sites)

Family and Friends

Soliciting money from friends and family is perhaps still the most commonly used tactic to fund a business. However, you must be conscious of the fact that relationships can suffer when friends and family members become creditors.

Do not make the mistake of cutting corners when soliciting money from family and friends. You should present them with a business plan and all the financial projections necessary to secure money from banks and other financial institutions.

Business owners sometimes find it challenging to secure adequate funding for their ventures. While this may be a cause for some concern, it does not mean entrepreneurs should jettison their dreams of successful business ownerships. The four methods above have proven beneficial to business owners in search of financing for their business ventures.
Once you have secured the funding necessary to start your business, or keep it going, make sure that you are following sound accounting and finance principles to keep your business thriving.