Building a business from the ground up is a mixed bag of feelings. There’s often excitement, but it’s usually accompanied by nerves. Whether your business is based on a long-held dream or an idea that’s recently popped into your head, starting your own business can help you grow personally and lead to more stable finances.
However, the early days of a new business can be filled with stress as you are still figuring out how to make your business grow and flourish – or if it will be able to. One of the first things that needs to be addressed is the capital you’ll need to start and how to get it.
There are more ways than ever to access the capital you need, but not all of them will be the right choice. As in all investments, diversity is often a good strategy for success. Putting all your eggs in one basket puts you more at risk should the unexpected occur, and with new businesses, the unexpected happens a lot.
When you diversify, it allows for more flexibility and a second source of cash flow should you need it. Let’s look at some of the different ways to finance a small business.
A basic business loan is the most straightforward way of accessing funding for a small business. This can come as a typical small business loan or specific heavy equipment financing to ensure your business has the equipment needed for success.
A business loan can be acquired from a bank or a reputable online financing company. Criteria can vary, but typically an application is made to the bank or lender where it is evaluated and approved or denied.
Over time, you make payments on the loan with interest. Loans can be secured or unsecured. With secured loans, interest payments are lower because collateral in the form of stock, property or equipment is put up as security. This means if you don’t or can’t repay the loan, the lender can seize the collateral as payment.
Unsecured loans don’t require collateral to be put up, but interest rates are higher, and there may be much lower limits on the amount you can borrow.
Investors come in different forms, but more often than not, they are either venture capitalists or angel investors. Venture capitalists are usually firms made up of investment advisors, lawyers, and accountants who make significant investments. Angel investors are more commonly wealthy individuals who invest smaller amounts into specific products rather than in growing a business.
This type of financing is advantageous because the money is an investment rather than a loan that needs to be paid back. However, it also means that you are giving up a portion of the ownership of your business. The larger the investment, the bigger the stake your investors will want, and you will likely have to discuss and consult with them before making decisions about the company. This works well for some businesses but not for others.
Look around at your options and make the decision that works best for you and the business you are trying to build.