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Every year, thousands of people establish a business. While their business ideas and models may differ, they all need money to start their businesses or keep their startups afloat. Capital and operational costs are just some of the expenses you face when starting a business. Without funding for these expenses, your business won’t stay open for a long time.
With that in mind, securing a financial option for your business is essential. But should you have just a single option? Putting all of your eggs in a single basket is never a good strategy. Securing multiple financial resources for your business is essential. It’s also important to have backup options for business financing in the future. Not all financial options can be used for every financial aspect of your business.
Thus, having multiple financing options is optimal for diversifying your business credit and having specific financing for a specific reason. Also, you have to remember that banks aren’t the sole financing source for your business. By showing them that you are proactively seeking another source of financing, they’ll give you good deals for you to stay with them. This strategy is a great negotiation tool.
Debt Vs. Equity
You can secure financing for your business in two different ways: debt and equity.
Debt is a form of a loan that provides you with limited funding for your business. This debt has to be repaid within a set period. You can choose either an unsecured loan or a secured loan.
Unsecured loans are generally harder to obtain since they are risky for lenders. The risk results from the lack of collateral in the transaction and they have to trust that you’ll repay the loan in time. Secured loans are secured by your assets, which will be taken away if you’re not able to repay the loan on time.
However, the best thing about loans is that there are a lot of lenders, like CreditNinja.com, in the market. This means you have lots of legit options for different loan products.
Equity works by selling a percentage of your business for funding. In this case, you won’t be paying back anything since the investment will pay back the investor with all the benefits and profits your business will have in the future.
Keep in mind that both of these options are reliable, and there is no better one. Also, all of your financing will consist of either debt or equity, or a combination of both. Here are some financing options for you to jumpstart your businesses.
Savings
Of course, if you have saved up some money for your business, it’s always advisable to use it instead of taking out a loan or selling an equity stake. This is arguably the wisest and most conservative way of funding your business since you won’t be taking any risks in doing so. However, the problem with this option is that the financing is limited by the amount of money you’ve managed to save.
Some entrepreneurs even take this a step further by taking out equity from their homes. This is an effective solution, but we don’t recommend it because of the risk of losing your house. Some even take out money from their retirement savings and insurance policies to access capital. Of course, these options are also risky.
You can obtain capital for your business by taking out money from your savings. However, we don’t recommend using your retirement savings, home equity, or insurance. These options involve a lot of risk and could put you or your family in jeopardy if the business fails.
Venture Capital
Venture capital is a type of financing you obtain through one or more people who invest in your business. The first thing that you should know about venture capitalists is that they don’t invest in just any business model. They are more into technology-driven businesses and companies with a high-risk, high reward strategy. So how do they work? They usually invest in a company by offering capital in exchange for equity.
Of course, just like anyone, they also want a hefty ROI once the company starts selling shares. That said, be sure to look for investors that have relevant experience in your business model.
Business Loans and Lines of Credit
When thinking of business financing, business loans and lines of credit are usually the first things that come to mind. They are simple and straightforward, but not without risks. These financing options work by offering a set amount of money for your business. You usually have a set period to make repayment.
Like getting a payday or even installment loans, failure to pay can ruin your business credit. It could affect opportunities to take out a loan in the future. Although they can be challenging to obtain, they usually offer a considerable sum of money, which can help your business’s financial aspect.
In Conclusion
There are several ways for you to secure financing for your business. Most of them are helpful in funding, but they all have their risks. Make sure to read the details of the transactions and pay back the loan in due time. Obtaining financing is easy; maintaining it can be tricky if you don’t know what you’re doing.
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