Managing your personal finance can be quite a challenge at times and you may have to start looking at outside help from lenders. For instance, payday loans can sometimes be an effective tool to use in a financial emergency. But when running a business, you may have to look at different options. When it comes to financing your first business, you may be overwhelmed by the number of options out there and you might not know where to start. To help, we’ve put together this handy guide for all you new entrepreneurs, so keep reading and discover how you can finance your first business.
The most common type of finance that first-time owners turn to is loans. This is because most people are already familiar with them and how they work, making them easy to understand. A lot of the time, business loans will allow you to borrow more than if you were applying for a personal loan. This can be more beneficial for business owners as you can then achieve all the things you wish to do for your business without putting yourself into debt. When taking out a business loan you will be subject to interest rates, and these will determine how much you pay back overall and how much your monthly payments are. Your business will also be credit checked, so it’s a good idea to know what your score is before applying. If you don’t have a business credit score yet, then your own personal score will be taken into account. So, if you don’t have a high credit score yourself and your business hasn’t had the chance to build up a score, you may struggle to find loans. Each lender will have different criteria so make sure you read through them and check that you’re suitable when applying. This will lower your chances of an automatic rejection because you don’t meet their stipulations too.
Credit Cards And Overdrafts
If you don’t need a lump sum of cash and would prefer to be in control of how much debt you get your business into, then you could look at getting a business credit card or overdraft instead. Some businesses like to use a credit card for their monthly spending and then pay it off at the end of the month. This could also help you to build up a credit score too, helping improve your loan applications in the long run. Business credit cards and overdrafts tend to have higher limits too, so you can make large purchases when you need them. It might be worth applying for a credit card before you need it too. That way if you’re facing an emergency, you’ll have the financing to fall back on. Both of these options also allow you to only spend how much you need and make more flexible repayments so they can work well for new entrepreneurs.
Equity financing is a unique option of financing that allows investors to purchase shares within your business in exchange for their finance. You don’t have to pay their finance back as well which can help new entrepreneurs keep their debt low. However, you do need to be prepared to give up some ownership and decision-making in your business as the investors will now have a say in the running of your business. This can be a good thing though as they will more than likely have some expert business knowledge which can help you in the long run. Equity investors will also want to do their best to try and keep your business afloat so it can be more beneficial for you.
Another form of financing that you don’t need to pay back is business grants. These are normally paid by the government and have quite a lengthy application process. You can be awarded quite large sums of finance using this method, but they do have some drawbacks. When you apply, you have to specify what you’re going to spend the money on, and if you’re approved, you won’t be allowed to stray from that plan. Some grants also aren’t renewable, meaning you may need to look elsewhere if you need more finance after. But the benefits of grants can outweigh these negatives. Keeping your new business debt-free can be helpful and being awarded a grant can also give your business more visibility. This can then set you apart from your competition and give you some unique brand awareness. However, relying purely on business grants can sometimes be an unstable plan as you might not be approved, and you’ll then be back to square one. Having a backup plan when it comes to grants can be a good idea as no matter the outcome, you’ll still be able to secure some type of financing.
If you’re not wanting to rely on investors or government grants, you can look at a new digital type of finance called crowdfunding. Essentially, you set a target finance goal online and ask members of the public to donate. Again, you don’t have to pay the money back but it’s a nice idea to give the crowdfunding investors something in return. This method can work particularly well for new businesses as people will be keener to back you and help you grow. It’s also worth putting your story and background into your crowdfunding as people will want to get to know you before donating. Although crowdfunding can work fantastically well, if you don’t reach your goal, you may have to look at other options.
As a new business owner, you probably want to help your business be the best it can be as soon as you can, and finance can be a way to help. There are so many options out there and each one of them has different benefits. Spend some time assessing your business needs and comparing them to what each form of finance can offer you. You’ll soon find your decision easier than ever, and your business will be on the path to success!