One of the main questions entrepreneurs have when they want to start a business is where to get financing. It’s not magic or a miracle, it takes effort. There are a number of creative ways people can find for funding their idea for a business. When trying to get financing, it’s important entrepreneurs look at many options as possible.
Personal Contacts
One of the first things an aspiring entrepreneur needs to do when looking for funding is to contact friends and family. This is often successful. It’s important not to take advantage of the relationship. There are benefits to keeping the deal as professional as possible. This may include having a formal written agreement signed by everyone involved. This agreement could cover how the funds will be paid back, what will happen if the business fails and more. This will define the funding as part of a business relationship.
Bank Loan
This is only a real option for individuals who have excellent credit and own something of value like a car or house. The entrepreneur may be required to offer these things for collateral. It is possible for an entrepreneur to qualify for a loan program offered from the Small Business Administration (SBA). Lending institutions are able to offer beneficial programs over the web. Companies such as Advanced Funds Network can provide a funding program to help any business situation.
Economic Development Programs
There are a number of programs offered by different states, counties and municipalities for economic development. Their purpose is to help businesses succeed and increase local economies. Some of these programs offer financing for people to start a business. This could include loans, grants or both.
Trade Equity
This can be effective when the entrepreneur is willing to barter their skills for something they need. This could involve offering computer skills in exchange for office space. Other entrepreneurs have provided legal or accounting help for everything from office supplies to office furniture and more.
Angel Investors
These are business people who have succeeded in their chosen field. They will often be happy to finance a new company that appears to have high growth potential. When an entrepreneur is low on funding their start-up enterprise, an angel investor can appear to have been sent from heaven. Before anyone agrees to take funding from an angel investor, they need to look carefully at the fine print of the agreement. An angel investor will not loan money but make an equity investment. They will want to own a portion of the entrepreneur’s business.
Crowdfunding
One of the newest and most effective start-up funding sources are online crowdfunding campaigns. With the passage of the JOBS Act, anyone can participate in this type of funding program. With this method, individuals pledge amounts of money online for an entrepreneur’s company during the crowdfunding campaign. The people who make these pledges can pre-buy the start-up’s products for a later delivery or offer donations. People who participate may also or qualify for some type of reward from the entrepreneur.
Social Lending Web Sites
Entrepreneurs can apply for loans directly from other individuals using the web. Two parties discover one another on at a website designed for such a meeting. The two parties determine the terms of their agreement. The Web site has the role of being an intermediary during the process. An entrepreneur registers at the Web site. The loan request for a specific amount of money and desired interest rate is then posted. Lenders will then bid on the proposed loan. When an entrepreneur is approached by a lender, the two can then negotiate the loan. Loans on social lending sites are unsecured loans usually to be repaid within a three year period.
Retirement Accounts
Most aspiring entrepreneurs are not aware they are able to borrow money from a retirement accounts such as an IRA, 401(k) and more. When it comes to a 401(K), the account owner can borrow up to $50,000 of the retirement savings as long as the money is paid back to the account within five years. With an IRA, a person can borrow money interest-free for approximately sixty days. If these loans are not paid back in time, the account will be charged tax as well as a ten percent early withdrawal fee.
