Smart Ways To Finance Your Business Idea
As an entrepreneur, financing is one of the biggest hurdles you’re likely to face when bringing your business idea to life.
16:11 06 November 2019
Although it would be perfect if you have a trust fund or some savings that you can draw from, there are many other ways to raise capital for your new business.
Read on to find out how to best finance your enterprise and turn your dream idea into tangible reality.
Apply for a Personal Loan
To grant you a loan, banks will want to see a history of profit or proof of existing revenue, which obviously can be a problem for most aspiring entrepreneurs. Due to your lack of revenue, traditional business loans can be extremely hard to obtain when you’re launching a new business. This is why a personal loan can be your golden ticket to financing your new idea without giving away any of your business equity.
Although a personal loan can offer you only a fraction of the amount of money that you can borrow with a business loan, it’s much easier to apply for. This is simply because startups are inherently risky investments, so the amount of capital that lenders will be willing to loan you is naturally going to be limited. While your eligibility to apply for a business loan depends on the creditworthiness of your business, among other factors, getting a personal loan depends entirely on your characteristics and skills.
To grant you a personal loan, lenders will typically examine your credit score, source of income, and your current debt-to-income ratio. However, you can still apply for a personal loan, even if you have a bad credit score. Consider finding a lender for a loan when you have bad credit, instead of letting your credit history stand in the way of your business idea. By working closely with lenders who understand your current financial situation, you’ll be able to paint a bigger, brighter picture of what the future of your work will be like after you acquire the needed funds.
Seek Out Angel Investors
Angel investors are wealthy business tycoons who are likely to support new ideas that have the potential to make them even wealthier. Targeting angel investors who have a track record of financing startups isn’t as hard as it may seem if you do your research. However, as with every fundraising approach, the hard part lies in convincing them that your idea is worth investing in. To find the right angel investor who can act as your mentor and share their wisdom with you, you can use one of the many online investment networks or look for local investor groups that you can present your pitch to in person.
As opposed to what the name suggests, angel investors aren’t driven by altruistic motives. Like all business people, they’re primarily motivated by the prospect of profit. Unlike banks or other lenders, angel investors don’t offer loans; instead, they offer equity investments. This means that in exchange for their financial investment, they’ll be buying a share of your company, usually between 10-50% of your business. This may seem unreasonable to some people, but it’s a tempting source of capital considering the fact that you won’t have to make regular payments with interest.
Crowdfund Your Idea
Thanks to the internet, crowdfunding has completely transformed the traditional fundraising concept. Instead of chasing after investors and corporations in hopes that they’ll give your sales pitch a chance, you now have different virtual platforms where you can present your business ideas and plans. This gives potential investors the chance to come to you rather than endlessly pursuing funders who may or may not be interested in your work.
Not only is the concept of crowdfunding a favorite for aspiring business owners, but it’s also exciting for those investing in it, making it one of the most prominent tools of the digital economy. Different crowdfunding platforms have different ways of operating. However, the one thing they all have in common is that they present a fairly quick way of obtaining finance for a new business.
You don’t have to be a tech genius to start a successful crowdfunding campaign, but you do have to present a compelling pitch that strongly represents your business’s potential for growth and can effectively get your voice heard in the vast, competitive landscape of crowdfunding.
Presell Your Business Before Launching It
Instead of investing tremendous amounts of money in a logo, website, product, and marketing, only to find out that no one is interested, you can now prove that your idea can work before actually starting your business. Although this may be a difficult path to raising capital, especially if you don’t have an established reputation in the professional world, you can pull it off if you have the right marketing skills. To prelaunch your service or product before it’s even created, you simply have to use the social media and mailing lists to attract loyal followers and bring in sales.
The best way to do so is by posting a demo of your product on the appropriate social media channels in addition to doing live webinars to engage with the audience, attract their attention, and get their feedback. If you do manage to successfully achieve all that, you can have direct access to the capital you need by getting people to pre-order your product.
Sifting through the funding options can be a dull task, but without it, your brilliant idea may never live up to its true potential. Remember that not all business models are created equal; what works for one entrepreneur may not work for another, and this is why it’s important to be aware of as many ways to raise capital as possible before you set your plans in motion. Whether you choose one of the aforementioned options or a combination of them, the smartest approach is to go with the option you’re most comfortable with—one that best meets your business needs while giving you enough space to actually focus on bringing your idea to life.