‍7 Ways to Finance Your New Business: From Friends & Family to Crowdfunding

You have a brilliant idea for a new business, you’ve done your research and know there is a market need. Now all you need to do is fund it. Starting a new business can be expensive, but luckily there are many ways to get the capital you need. Financial institutions such as banks will often not be your first port of call when launching a business venture, but they can still be useful if you’re looking for financing help. There are numerous sources of funds for entrepreneurs — from friends and family members to angel investors, smaller venture capital firms, and even online crowdfunding sites. Here are seven ways to finance your new business:

Friends & Family

There is no better source of funds than friends and family. People are more likely to invest if they know you and trust you. They are more likely to offer you a lower rate than if you were approaching a financial institution. However, this is not a long-term source of funding. So, you need to make sure that you pay them back as soon as possible. It is common practice for entrepreneurs to use friends and family, but you need to make sure they are aware they are taking a huge risk. You need to have a plan in place to pay them back as soon as possible. The longer it takes to pay them back, the more difficult it will be. It is best to take a small amount from each person so that you are not putting anyone in a difficult financial situation.

Loans from Financial Institutions

Banks and other financial institutions are a good first port of call when you are seeking financing for your business. They can offer interest-free loans or lines of credit. They have a large amount of capital, so they often have a lot of money to lend. However, you’re more likely to be approved for a business loan from a financial institution if you already have a track record of profitability. Banks and other financial institutions are not only looking for people with a great business idea, but also those with a proven record. As with any loan, you will need a good credit rating to be approved. It is also common practice for financial institutions to take a share of your business in exchange for their financing. This is called equity financing.

Angel Investors

Angel investors are high-net-worth individuals who have experience in business. Angel investors specialize in funding start-ups, so if you are in the very early stages of your business, you may want to consider approaching an angel investor. With this kind of financing, you’ll need to find a single investor, who will be repaid with interest. Angel investors want a significant stake in your business as a sign of gratitude for their investment. However, they are more interested in future profits than your current revenue. Angel investors are unlikely to offer you a loan, but instead provide capital in the form of equity. This means they will receive part of your company as payment for their investment.

Venture Capitalists

Venture capitalists are investment funds that specialize in high-risk, high-growth businesses. Venture capitalists often have partnerships with angel investors and have large sums of money to invest. They are interested in businesses in their very early stages or those that have high potential for growth. You may also be able to find a venture capitalist through an incubator or accelerator. Those are organizations that help entrepreneurs get their businesses off the ground by providing seed funding, mentorship, and office space. You will likely need to provide a large equity stake in your business in exchange for venture capitalist financing.

Online Crowdfunding

Online crowdfunding sites are a great source of short-term financing for your business. The most popular crowdfunding platform, Kickstarter, focuses on creative projects. However, you can find a crowdfunding platform for almost any industry. There are two types of crowdfunding: rewards-based, where backers receive a product in exchange for their investment; and equity-based, where backers receive a financial return on their investment. If you choose to go the equity route, you will be required to issue shares through a securities exchange. You will need to make sure you meet all applicable laws before accepting equity-based financing. Online crowdfunding is a great way to obtain short-term financing for your business. It is easy to launch your crowdfunding campaign and accept payments through your website or social media. You can also spend your funds immediately, since most crowdfunding platforms are designed to let you use funds immediately after they are received.

Equity Financing

You can approach investors who are likely to provide equity financing. Equity financing is when you offer a percentage of your company in exchange for capital. It is the most common form of financing when the business is just starting out. You may be able to find a person to provide the initial capital to launch the business, then find others to finance a larger share of the company. The person who provides the initial capital will often take a larger stake in the company than those who fund the rest. As with all types of financing, equity financing is risky for both the investor and the entrepreneur. You need to make sure that you have a solid plan for how you are going to increase the value of your company.

Co-signers

If you can find someone with good credit to co-sign a loan for you, you may be able to get financing from a financial institution. Banks may be more likely to offer you a lower interest rate if you have someone co-signing for you. However, if you default on the loan, the co-signer is responsible for paying it off. Make sure you choose someone you trust, as they could be put in a difficult situation if you are unable to make payments. Co-signing is a risky proposition because you are essentially borrowing money from someone with bad credit. You should be prepared to pay a higher interest rate because of the risk involved.

Conclusion

Starting a new business is stressful enough without worrying about how you’re going to fund it. There are many options available to you, and you should use them as a way to start building relationships with investors and lenders. The more familiar you are with them, the better your shot at getting funding successfully. There are many ways to finance your new business. Depending on how much funding you need, you can choose from a range of options, including friends and family, loans from financial institutions, angel investors, venture capitalists, and online crowdfunding.