Identifying the right way to finance your small business is an important decision for any entrepreneur. Unless you are sitting on a pile of cash, you will need to go out and secure funds for start-up costs and to keep the business, not to mention your personal life, going until revenue begins to appear.
As seen in the recent article, 4 Top Industries for Entrepreneurs in 2018, there is a wide range of opportunities for those wanting to start their own business. Once you have your idea, here are seven top small business funding strategies for 2018.
1. Bank Loans
The most traditional way to fund a business, home, or car is through a loan from a local or national bank or credit union. Lending standards have gotten stricter in recent years, though many large and community banks have programs specifically to support small businesses. The downside is you will need to repay not only the principal but interest as well.
2. Credit Cards
Many small businesses have built on the backs of owners charging their costs. This can be a tricky way to finance your business, however, as credit card interest fees are generally much higher than those charged for business loans. It is also important not to blend personal and professional debt.
3. Venture Capital
Venture capital is a way to secure private investors to provide much-needed funds for a new business. Most VC firms require formal applications and presentations and the development of business plans that assess markets and risks. In addition, in return for a stake in your company, the VC firm will want an ownership share (a percentage of all current and future earnings) and may require managerial oversight.
If you have a compelling idea for your business, there are many different crowdfunding platforms whereby strangers (along with friends and family) help support your business. Crowdfunding platforms vary with regard to terms and costs. Some require you to hit your desired goal or you do not receive any of the funds. Others take a percentage of each donation, along with set-up fees.
5. Federal Loans
The U.S. Small Business Administration offers several programs for small businesses, including specialized programs for minority- and women-owned small businesses. The SBA works with local lenders to issue these loans, including microloan programs that are partially subsidized by the government.
6. Friends and Family
If traditional options are not viable for financing your small business, you can turn to close friends and family members to consider funding your entrepreneurial enterprise. These arrangements, however, can be fraught with potential minefields and should be entered into carefully.
7. 401(k) Business Funding
Benetrends has pioneered a new approach to business financing that leverages an owner’s existing 401(k) or IRA funds. Under the Benetrends model, business owners can access needed funds without incurring early-withdrawal or tax penalties.
The Benetrends approach is simple. Companies are incorporated as C corporations. The new companies then establish a new retirement plan. The business owner then rolls over pre-existing retirement funds from an IRA or 401(k) and have the new retirement plan purchase stock in the new company.
The Benetrends plan allows access to funds without interest in as little as 10 days. Business owners can access funds rapidly and have the financial flexibility to move forward.
To learn more about how Benetrends can help you fund your entrepreneurial dreams, download Innovative Funding Strategies For Entrepreneurs today.