When planning how to finance your startup, several options will make the list, and each is laced with a risk versus reward challenge. How you finance your startup will depend on several factors such as business partners, cash on hand and collateral. When financing a business it is important to measure that risk for each option. Here are four ways to finance your startup and find entrepreneurial cash.
If you have friends that would be willing to financially back your startup either as a silent partner or a full partner, it is an idea to look into deeper. When bringing on a business partner it is important that you both have the same vision for the company. If there are differences in opinion as far as business operations, work these out before allowing the potential partner to help fund your startup to avoid future problems.
Home Equity Loan
This type of loan involves using your home value and credit line to fund your startup. There are several things you need to look at before taking advantage of this financing option. Home equity loans generally carry a lower interest rate than traditional loans which is a good thing when borrowing but many come with fluctuating interest rates, or variable APR (annual percentage rate). This becomes an unknown to control. Another factor is whether or not market values of home in your neighborhood are rising at a steady pace. The advantage of using your home equity is that, for the short term in the United States, the interest is tax deductible.
Short Term Loan
If you are only a little short of the total amount needed to start your business, you may look at an option such as a payday loan. This idea is fraught with risk and it usually a better idea to hold off an extra few weeks before starting your business. Payday loans come with extremely high interest rates, sometimes over 100% of the amount borrowed. What this means to you is if you borrow a thousand dollars you can end up paying over two thousand dollars back to the lender in short order. Payday loans also have a short payback time and the entire loan must be paid off in this time period.
Grants are funds issued by federal, state or local governments and are funded by taxpayer money. The federal government does not issue grants to private business ventures but there are other programs available through state and local governments. Most grants are awarded to non-profits or those companies focused on creating societal value like alternative energy technology. Even if your business does not qualify for a government grant there are other programs to help small business owners obtain low interest loans and funding for their business. Get to Googling for your state or local grant options.
About the Author
You can find David Smith blogging all over the financial community. With a strong passion for frugality and business, he believes a balanced business starts with balanced wallet.