The Entrepreneur’s Cheat Sheet for Investing in a New Business

The Entrepreneur’s Cheat Sheet for Investing in a New Business

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    Starting a new business presents you with a very important question of how to fund it.

    There are a lot of options when it comes to funding sources, so it might be a tough to decision to make, especially if it's your first business or startup.

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This article will review the possible solutions to the issue by covering the basic ideas of each funding option, as well as their differences. Reading through it should give you some insight and help you understand the benefits and drawbacks of different ways to bring your business idea to life.

Funding the Business Yourself

You can use any savings you might have to get your business up and running. Although it may sound daunting, entrepreneurs often sell property they have or take out mortgages in order to fund their business. This option is also called “bootstrapping”.

Once the business starts growing, you continually reinvest a part of the revenue to support the development. This gives you a slow but steady growth rate and a business that essentially funds itself right from the start.

When it comes to the management of the company, it is entirely in your hands, as you are its sole owner. On the other hand, it may take a considerable amount of time to fully develop the business.

Note that the funds at your disposal will be limited; and you may be forced to make some sacrifices in terms of your lifestyle and money spending habits until your company starts generating considerable profits.

Bootstrapping your business is no small investment and carries the risk of losing a lot. If the business succeeds – you reap all the benefits, if it doesn’t – you lose everything you invested.

Relying On the Help of Friends and Family

Getting your friends and family to invest in your business can either turn out to be the best decision in your career as an entrepreneur or the exact opposite of it. The people you hold closest can usually provide you with equity or debt funding at very favorable terms, if not give you some money as a gift to help you realize your dreams.

Reaching an agreement with them should be quite easy, and they will probably be patient in waiting for the investment to start giving returns. However, mixing business with personal relationships shouldn’t be taken lightly. Even though your business idea may be flawless in your mind, it can still fail, leaving you to deal with disappointed friends and marred family relationships. If you opt for this solution, make sure your “partners” understand all associated risks and are comfortable with the consequences of the business failing.

Taking Out a Loan

Loaning the money you need to put your idea into practice from banks or other financial institutions or organizations is always an option if you are uncomfortable with or unable to provide enough funds yourself or with the help of your family and friends. With the huge number of lenders offering different loan terms, you are bound to find one that suits your needs.

Generally, banks, as the traditional lending institutions, require you to secure the loan with your assets. On the other hand, you can use the internet to easily find lenders willing to provide you with unsecured loans under transparent terms. For example, you can visit OurMoneyMarket to get a free, no obligation rate quote in just a few clicks, regardless of your credit rating, and find out more about how unsecured personal loans work.

Funding your business through a personal loan allows you to retain all of the equity and remain independent in the management of your company. However, before taking out a loan, you should try to anticipate the future cash flow of your business and assess whether you are going to be able to make regular payments. Loans are a great way to finance a startup or a small business, hence the increased interest of banks and other lenders to support promising entrepreneurs. Just keep in mind that you will have to repay the loan whether your business thrives or fails.

Finding Investors

If your business idea is such that it will generate high returns in a short time if invested into and you have a good business plan, attracting the right people, such as angel investors or venture capitalists to invest in your business shouldn’t be too hard and may prove to be an excellent funding source.

Angel investors and venture capitalists are people / professional investors, who are willing to invest money in companies in development, usually in exchange for equity. The idea behind the concept is to invest smart, seek liquidation at the right time and make a large profit.

Investments from angel investors and venture capitalists will make large amounts of money available to you, along with sound advice from experienced businessmen and other benefits, such as new connections. This is an ideal solution if you are not looking to start a family business, since you will not be in complete control of your company, as the investors are going to look for a liquidity event, in order to collect the return on their investment.

other valuable resources:

Applying for Grants

Getting a university or government grant to develop your product is by far the best possible option to fund a project, especially if it requires extensive research and development. In addition to not having to pay any money back, the simple fact that the government is funding your idea will establish a significant reputation for you and help you connect with investors and potential buyers.

“Alright, sign me up!” Well, the truth is, it’s not that simple. Typically, grants are only available for a certain type of technical ideas in fields in which the government is looking to encourage development. Furthermore, applying for a grant and providing all the necessary documentation to meet the set criteria is a tedious process.

Even if you qualify for the grant, the government may set restrictions in terms of how you can use the funds and what you can do with the product you develop. Still, if your idea for a project is eligible for a grant, you should definitely pursue this option.

Before making a final decision on how to fund your business, be sure you have done your research and familiarize yourself with all the options and how you can combine them to suit your needs. If you are new to this subject, it might be prudent to seek some professional advice before investing.

Image Credit: Pixabay

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