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Starting a business can be expensive. When funding this process, there are three options available – use savings, borrow the money or get given the money from investors. Here’s a lowdown on all three methods of funding so that you can choose the right one for your business.
Using savings
Using savings can avoid you having to pay out money in interest or shares unlike borrowing and seeking investment. This can make it the most financially sensible form of funding. However, unless you’ve already got the savings lying in a bank account, saving up the necessary funds is likely to take a lot of time. In this time, another startup may come in and steal your place in the market. It takes a lot of commitment to save up and can show that you’re fully devoted to your business idea, however it could delay your business plans and stop you from taking the opportunity at its best time.
You can speed up savings with a business savings account – these can generate lots of interest allowing you to save up faster than a regular account. You may also be able to sell certain possessions to help contribute towards funds or make certain cutbacks from your life that you prevent you spending as much and allow you to save more.
Borrowing money
Borrowing money gives you instant access to the funds you need and is the most popular form of funding a business. Unless you’re borrowing from a family member of friend, you’ll most likely have to pay interest on this money, which can be the downside.
Specialised business loans often come with low interest and are given out by banks and professional lenders. You may have to wait longer to get your funds that you would with a personal loan, plus you may have to have a higher credit score, however this is worth the lowered interest. Other forms of borrowing money include peer-to-peer lending, business credit cards and lines of credit.
Seeking investment
You can also fund a business by asking for money from investors. In order to encourage investors to give you money, you often have to offer something in return such as a share of your profits. Most investors want to know that you can make them a return in the future, so you need to prove that your business has the potential to be profitable and successful. This means having a clear idea of your projected income and clear idea of the costs required to start your business.
There are lots of different ways to seek out investors. You could consider crowdfunding online, in which lots of people contribute money to your cause. Alternatively, you could approach a single investor. Some investors may be willing to offer guidance as well as funding, which could be advantageous. Others may take a more hands-off approach, giving you the space to run your business as you please. Whatever you do, just make sure that you don’t offer too big a slice of your profits.