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Although it has been said that money is the root of all evil, it is a necessary evil when you are starting your own business. In fact, one of the most crucial decisions you will have to make when starting your new adventure is how much money you will need for the initial and operational costs. Although some businesses may run low, others will need large amounts of money for things like inventory and equipment.
Personal loans and credit cards
Since starting a new business is risky and can be difficult for your finances, it is imperative that you have them in order before launching. Some people continue to work on their current jobs while they start their new business, while others put up the initial costs on credit cards or request a second mortgage at home. If you decide to finance your new business from this fund, make sure your credit is in order by checking it in one of the three credit bureaus: Equifax, Experian or TransUnion. A good rule of thumb is to have at least six months of separate living expenses in case things get difficult.
Bank loans or commercial loans backed by the government
Debt financing means that you will receive a loan that must be paid over a certain period of time, usually with interest. Start your search for financing in a commercial bank and in a union of savings, loans or credit. Although banks are usually reluctant to offer long-term loans to start businesses, many government programs encourage them to do so, including several from the Small Business Administration. You will need a good credit history, a solid business plan and a strong curriculum if you choose to go this way. You will probably also need a guarantee. Women and minority business owners can find loan programs through certain nonprofit organizations.
Equity capital
With equity capital, you sell shares of your company to raise money. This financing is a good option if you don’t want to have a debt. Much of the equity capital for small businesses comes from family, friends or even frequent customers. According to the Small Business Administration, contrary to popular belief, most professional venture capitalists do not look for businesses that are starting, but businesses that have a proven track record of three to five years. As you can imagine, this type of financing may have its disadvantages in the future. If investors do not believe that you are working hard enough or smart enough, if they think they could do a better job, they can get involved in your company more than you would like.