Starting a business can be a daunting task. There are permits to file, people to hire, and supplies to buy. There are also things that need to be done; like deciding on how to market your products or your new business and fine tuning your production process if you’re into manufacturing. But financing your new business is an important decision that you’ll have to make for your startup. It can even be argued that this is one of the most important decisions that you’ll have to make for your startup.
Your Financing Options as a Startup
Use Your Own Money: There are people who could have enough funds to start their own business. Perhaps they saved up enough money to start their own business from their day jobs or they may have received a windfall from an inheritance or by winning the lottery. For people who use their own money to start their own business, they can reap all of the rewards of the venture for themselves. However, they also shoulder ALL of the risks of the new business. The failure rate for new businesses can be high so the risk of losing all of your money in this option is high.
Use Your Credit Card: Using a credit card to start your own business is another option for entrepreneurs. This is also a popular method for funding a new business aside from borrowing money from relatives. An entrepreneur can sign up for a business credit card but they should understand that they will still have to guarantee the business debt. This is especially true for sole proprietorships so the entrepreneur’s personal credit rating is at risk with this option. Even for incorporated businesses, credit card issuers may still require that one or even all of the incorporators be signed up as guarantors of the debt before issuing a business credit card.
Accept Funding from Others: Another financing option for you founding your own business is other people. They can be relatives who believe in you and trust you to do your best to make your business succeed. Another are angel investors who provide funds for your business who in return gets a stake in your business. The risk to this is that it could be hard to mend relations with your relatives if you lose their money on your business. For angel investors, they may exert too much influence or pressure on your business that you’ll lose that thing that might have urged you to go into business in the first place – control over your own success.
Entrepreneurs who want to establish their own business have many options to finance their venture and these are just three of them. They can choose to fund it themselves, use a credit card, or accept an investment from relatives or angel investors. There are risks involved in each option so entrepreneurs should study the option that they feel presents the least risk to their new business. It’s really up to the entrepreneur to decide which one of these options is best suited for their situation and to determine what they can stand to lose in the worst case scenario, be it all of their hard earned money should they choose to fund it all with their money – or complete control of their business should they choose to accept funds from other investors.
Photo Credit: Wikimedia/Michael Coghlan