Advice & Options for Funding Your New Business: Part 2
Last time, we looked at some basic ways to secure capital for new business that involved the least outside commitment.
Now, we’ll look at exploring how to get funding for your business using more advanced methods.
Small Business Administration Loans
An excellent finance option is to take advantage of the programs offered by the Small Business Administration (SBA). While the SBA doesn’t loan money directly to small businesses, it supports many different lending associations that are designed to put capital into the hands of entrepreneurs.
The most common type of loan to secure through the SBA is a 7(a) loan. There is no minimum amount required for a 7(a) loan. The maximum is $5 million. These loans require the business to comply with all SBA loan restrictions and qualifications, which include how the money is used and the legal status of individuals listed as owners of the business.
The other common type of SBA loan is the called a microloan. These loans are available for up to $50,000 and must be repaid within 6 years. While microloans often have higher interest rates than 7(a) loans, they are easier to get if you have poor credit.
Many business owners have found that the internet has some of the best financing options for a business. Crowd funding, often facilitated by sites such as Kickstarter, let you reach a wide audience to pitch your idea in hopes that it will resonate and generate capital.
However, when using crowd funding you need to be aware of what restrictions each platform comes with. Some have built-in milestones that must be met before any money is released while others might take a cut of any cash raised.
Venture capital is one of the more high-profile ways to get funding for your new business. These firms are founded to make large investments in new companies in exchange for equity. While venture capital firms have large war chests of funding to deliver, competition is high. Many new companies vie to attract their attention.
To interest a venture capital firm, you will either need an exciting new idea or a business that you can demonstrate will make a solid return on their investment. This is one of the best financing options for a business that can deliver rapid growth.
Similar to venture capital firms, angel investors are individuals with a lot of funding looking to invest in an industry-specific company. If you are generating good buzz around your company, these investors have experience that can help you reach the next level and expand rapidly. However, angel investors have high expectations that their suggestions and input will be applied for their investment to make strong returns.
Don’t let the pressure of trying to secure funding discourage you from starting your new business. There are a lot of excellent options available – it’s just a matter of figuring out which one is best for you and your company.
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