Once you’ve made the decision to start your own company, you’ll find that financing is one of the most difficult obstacles an entrepreneur has to overcome. This will also tie into the difficulty of obtaining your first office space, which is why coworking for startups is ideal. When considering the capitalization of your small business, it’s important to understand the options available to you both right now and in the future should you decide to expand into a virtual office or brick-and-mortar store.
While some entrepreneurs are able to obtain financial backing from friends and family, most entrepreneurs aren’t so fortunate. Here’s a round-up of some ways you can finance your small business from the ground up.
Credit Cards
According to experts, credit cards are a major source of financing for small business owners. Statistics show that more than 65 percent of small businesses use credit cards on a frequent basis.
Although it’s a popular approach, financing your start-up with credit cards can be risky. Unless your business is incorporated, you’ll risk your personal credit rating and ability to borrow if you use credit cards to finance your business. Finally, be sure to read the fine print on all credit card offers – if one seems too good to be true, it probably is. If you’re confused or unsure, don’t hesitate to ask a professional for guidance.
Crowdfunding
In recent years, crowdfunding has become a popular way for people to attain start-up financing for their small business. Whether you choose Kickstarter or Pozible, crowdfunding might be worth a shot – especially if the general public would view your business as being fun, quirky, or more interesting than most. According to Massolution crowdfunding report 2015, the global crowdfunding industry grew immensely in 2014 - expanded by 167% to reach $16.2 billion, up from $6.1 billion in 2013. The industry has raised more than double once again and reached to $34.4 billion, in 2015. If you do decide to try crowdfunding, here’s some tips: start your campaign six months before you want to launch your project, set your funding goal as low as you can manage because some platforms follow an “all or nothing” model, and don’t forget to reward your donors.
Angel Investors
Typically found among an entrepreneur’s family or friends, an angel investor is more than a financial backer – they’re mentors as well. This alternative form of investing typically occurs in a company’s early stages of growth, with the investor expecting a 20 to 25 percent return on their investment. The principal advantage of an angel investor is a friendlier atmosphere and a quicker decision-making period. When working with angel investors you’re likely to find an investor with strategic experience who can provide benefits to your company in the form of partnerships or customers.
Personal Savings
This is the top financing options for those who find they don’t qualify for credit cards, microloans, or any other type of “traditional” financing. Although this is a great way to get started, you should consider taking the appropriate steps to correct any credit card issues that may be part of the problem, especially if you plan on expanding your business in the future.
