Planning and starting a business is one of the most exciting things you’ll ever do. You have done tons of research, written a business plan and now you have just one, big question left to answer: how to finance your business. Business funding is such a broad concept; it can easily overwhelm an entrepreneur.
To help you get started, consider the following things you should consider before financing your business, along with tips on how to choose funding:
Understand what you’re financing
In order to determine what financing is right for your business, you first have to understand what you’re financing. Take a moment to take a closer look at your startup costs. What is it that you need extra working capital for? Here are some of the aspects of a businesses that often require startup capital.
- Renting or buying office space – One of the biggest fixed costs is office space. Are you planning on renting or buying a space? Both can be incredibly pricey. If you’re like many new business owners, you might choose to operate from home in the beginning. Even so, you will still have to have a plan for where you want to end up as your business grows. Check out your options for renting and/or buying and keep those figures in mind as you seek financing.
- Hiring staff – Unless you’re running a one man show, you will have to hire and pay employees. This might also include job posts, work with recruiters and background checks, all of which cost money. Make sure you consider all the costs associated with hiring employees, not just payroll. (Depending on your business structure, you might also have to factor in higher salaries for executives and senior management.)
- Equipment – Equipment costs will entirely depend on your business type and industry. You might have to purchase computers and other electronics or a million-dollar piece of machinery. Put together a list of all the equipment you need, from small items to large ones.
- Inventory – Again, inventory will depend on your business type. Some businesses do not handle inventory. If your business does, you will need cash upfront to purchase inventory. After all, you wouldn’t want a customer to visit your business looking for a product that you don’t have and lose a sale.
How to Choose Funding
Now that you have a better idea of what you need financing for, it’s time to find out how to choose the right financing for your business. In the past, the options small businesses had available to them were incredibly limited. Today, small business owners have more options than ever, thanks to alternative lenders. Here are a few alternative lending options you should consider, along with how they work:
- Angel investors – An angel investor is an individual investor who is likely to invest in a startup or early-stage business. Securing a loan from an angel investor uses the same business proposal model as venture capitalists.
- Invoice factoring – Factoring invoices allows you to use unpaid invoices to generate quick cash. The factor will front you the money on the invoice, and collect payment for your from your customer. You secure quick cash (you have already earned, so you avoid debt) in exchange for a small factoring fee for their services.
- Cash advance – A cash advance allows you to sell your future credit and debit card sales in exchange for quick capital. Most alternative lenders, like First American Merchant, provide a flexible repayment process. Repayment is simply a percentage of your daily credit and debit card sales. When your business is doing well, you pay back more. When it has a slow month, it pays back less.
- Crowdfunding – Sites like Kickstarter and Indiegogo allow your business to pool investments from several investors. Crowdfunding gives your business a quick boost of financing.
Would you like to learn more about your alternative lending options, like a cash advance? Our team of experts at First American Merchant can explain the process and help you secure the cash you need to launch your business in as little as 24 hours.