Whether you’re a young entrepreneur still racked with school loans, or an experienced business professional lacking the means to fund your new startup idea, many thought-leaders and prospective business owners are finding the hurdle of initial investment too high to climb.
Fortunately, there are a number of financing options that are readily available and oftentimes welcoming to those who can demonstrate solid financial know-how and an idea with long-term potential for growth and development. While the process may not be particularly easy or enjoyable, matching yourself with the best financing plan can not only make your idea into a business reality, but can also give you a degree of financial breathing room without the need to pay dues upfront all at once. Let’s explore three common ways entrepreneurs are finding solutions to their financing problems:
1. Find a credit card built for your small business
For those unfamiliar with the differences between traditional personal credit cards and those built specifically for small businesses, the essential distinction involves protection and rewards. Personal credit card holders enjoy a greater variety of protections afforded by the government when it comes to maintaining a healthy line of credit. Those designed for businesses come with a higher degree of risk, but also offer many more benefits that are intended to help the average small business owner such as discounted business supplies, airfare, and so on.
The biggest advantage to opening a line of credit through a business card is the ease of attaining funds relatively quickly. This may be appeal especially to those who are forecasting cash flow problems shortly after launching. In addition to the relative quickness of the credit card solution, is the fact that credit cards present one of the easiest ways to get the money in the first place. So for those who’ve found this advice in hopes of working yourself out of a financial pinch, this may be an option you want to pursue.
If you do decide to open a line of specialized credit, be sure you’re aware of the pitfalls. Credit card interest rates are significantly higher than those associated with a traditional loan, so be sure you’re confident you’ll be able to keep up with the payments each month. Late payments can be a killer to an otherwise healthy credit score.
2. Repurpose retirement funds into investment materials
Specifically for those looking to invest in a franchising option, a relatively new trend is emerging that can provide a direct means of funding at the risk of your personal future savings.
One of the biggest challenges to prospective franchise owners is the often large initial fees. If you’ve accumulated a substantial pool of retirement through our career thus far, it’s possible to flip this money for a franchise investment. This is done through a Rollover for Business Startup Strategy you can explore more in depth here.
Since this strategy can present some more complicated financial issues, it’s wise to meet with a personal finance professional before making a substantial change to your retirement savings. Be aware that this too is an extremely risky move if you don’t have full confidence in your ability to make it work.
3. Turn to microloans for a more manageable solution
If your startup is in need of a more “intermediate” financing option, a microloan may be a useful solution. These loans are typically smaller than more traditional options and are issued to those with little income or have a credit history not quite up to the standards needed to qualify for a bank loan.
Issuers have found a good deal of success in terms of borrower repayment, with most statistics reporting somewhere between 90-99% of properly repaid loans. To add to the general assumption that microloans often result in significant success for borrowers, a survey conducted by Accion US Network found that 42% of respondents noted an income increase after being issued a microloan of some kind.
While each of these methods come with some degree of risk, remember that good ideas and solid business models can be very rewarding investments when executed carefully. While you should be careful when signing onto any kind of financing agreement that could put your money at jeopardy, those who are confident and complete in their research are those that typically succeed.
If you’re looking for financial advice regarding a new startup endeavor, our outsourced accounting and CFO services experts can help you carve a successful future for you and your business idea.