There will come a time for every business owner when they have to think about how they will finance their business’ operations. With so many options, deciding how you will secure the funding you need can be an overwhelming process. The following three options – currently the biggest areas of funding – will help you make a decision based on what makes the most sense for your business’ needs.
Bootstrapping
Commonly known as bootstrapping, this involves funding your business out of your own pocket. While this is the simplest form of funding, it can also be the most difficult. The advantage of bootstrapping is that you are in control of your finances, and you don’t have to worry about making payments to lenders or sharing equity with lenders. However, the disadvantage is that every penny you put into your business is at stake. If your business fails, your personal funds go with it.
Fundraising
Raising Capital
According to Business News Daily, “Venture capitalists and angel investors have helped tens of thousands of startups get off the ground, but it’s not always easy to stand up in front of a team of investors and tell them why they should give you their money.”
Keep in mind that raising capital will require a lot of preparation and presentation, both a well-written business plan and solid financial projections. Although it is not the only factor in an investment decision, you should also know that your online presence does provide a lot of information for investors. For example, Experian DataLabs has been conducting research to determine the correlation between a business’ social media use and its credit risk.
Crowdfunding
Crowdfunding has quickly become the go-to option for businesses that want to raise money. One reason why this option has become so popular is because it does not involve the pressure from formally pitching investors that other options do. Some entrepreneurs have shared their success stories, in which they were able to raise tens of thousands of dollars in just a few, short weeks.
Borrowing
Traditional Bank Loans
Despite the high rejection rate of bank business loans, many small business owners still turn to local and national banks. While it is true that securing lending from a bank is difficult, there is credit available for small businesses. The lingering perception that banks aren’t lending simply isn’t true. According to Jay DesMarteau, head of small business banking at TD Bank, “Last year, TD Bank nearly doubled its lending in key areas like New York and Florida”.
Alternative Lending
In the last few years, the business finance world has exploded with alternative lenders. These providers offer quick solutions through an online application and transfer process. The biggest advantage in working with a high risk provider is that your personal credit score and/or your business’ “high risk” categorization does not prevent you from being accepted. In addition, the application process is fast, simple and hassle-free. You will hear back within a matter of minutes and have your funds within a day or two.
For example, consider a merchant cash advance from First American Merchant. Your business can have money in the bank in as little as 72 hours. Your payments are automatically held from your credit card transactions, and there are no fixed monthly payments. Because approval is not based on your personal credit or financials, you will not be burdened with an endless documentation process. For more information on what a merchant cash advance can offer your business, contact FAM today. And whatever option it is that you choose, just be sure that it meets the needs of your business.