- Bootstrapping involves investing your money or resources without any external loans or investments but requires an upfront investment.
- Small business loans offer financial assistance with interest and fees but need a good credit history and collateral.
- Crowdfunding allows access to capital from anyone who believes in the project, with a strong social media presence and compelling content key to success.
- Regardless of your route, do your research and understand all associated risks before making a decision.
Starting or running a business can be a roller coaster of emotions. You have to make many decisions on the fly, and it can be difficult to know which one will be the best for your business’s success. But one of the most important decisions any entrepreneur needs to make is how they fund their business. Here are some options available, so you can decide which one will work best for you.
Bootstrapping
Bootstrapping involves investing money or resources into your business without taking out any external loans or investments. This option is great if you want more control over how your money is spent and don’t want anyone else having a say in how you run your business.
Bootstrapping also allows you to keep more equity in your company as no investors will take part ownership in exchange for their cash injection. In most cases, investors would want a return on their investment, which could mean giving up some of your shares in the company.
However, this option does come with its drawbacks. Mainly, it requires an upfront investment from yourself (or someone else), and bootstrapping may not be an option for you if you don’t have access to those funds.
Small Business Loan
Getting a small business loan might be the right choice for those who need some extra help when starting up their business but don’t want to give away any equity. These are usually provided by banks and other financial institutions, and depending on where you live, certain government initiatives may even provide financial assistance designed specifically for small businesses. Here are some factors to consider before choosing this option:
Budget & Calculations
You should take the time to crunch the numbers, considering how much you need to borrow, what interest rate you’ll be paying, and how long it will take to repay. It is also important to understand any other fees that might be charged.
Luckily, most institutions now offer accurate bank financial calculators for entrepreneurs weighing their funding options on their websites. It helps them to accurately calculate their expenses and budget, enabling them to make informed decisions when choosing the right funding option for their business.
Eligibility Criteria
You should also make sure you are eligible for the loan before applying. Lenders have different eligibility requirements, so you should check which ones best fit your business model and financial situation.
For starters, you should have a strong credit history and sufficient collateral to back up the loan. Furthermore, some lenders may also require that your business has been operating for a certain amount of time before they will consider lending you money.
Risks of the Loan
Taking out a loan also means that you will be responsible for repaying it and the interest. If your business fails to meet its obligations, you could end up defaulting on the loan and being blacklisted from taking out loans in the future.
Therefore, when weighing your funding options, make sure you do your research thoroughly and understand all the associated risks to make an informed decision.
Crowdfunding
Crowdfunding is becoming increasingly popular among entrepreneurs all over the world as it offers multiple advantages over traditional means of funding, such as bootstrapping or taking out loans. Crowdfunding allows entrepreneurs access to capital from anyone who believes in their project — even total strangers. Here’s how to plan an effective crowdfunding stint:
Set a Social Media Presence
Before you even think of launching your crowdfunding campaign, make sure you have an established social media presence. This will help potential backers know who they are investing in and give them confidence that their investment will be worthwhile.
Create Compelling Content
When it comes to crowdfunding, content is king. You need to create a compelling story that resonates with potential backers. This includes anything from videos, images, and text. Make sure your content is engaging, informative, and unique so that it stands out in the ever-crowded crowdfunding space.
Be Realistic
Finally, make sure your funding goal is realistic. Over-reaching could harm your crowdfunding campaign and make it difficult for potential backers to trust you. When setting your goal, make sure to do some calculations and figure out how much money you’ll need to achieve your project.
When deciding how to fund your business, several options are available — each with its own benefits and drawbacks — so do your research before committing. Weighing these pros and cons can help inform what type of funding route would work best for your specific situation, but ultimately it comes down to personal preference — what works well for one person may not necessarily work well for another.
