New business ventures can cost money, a lot of money. So, where to get funds? I will discuss some common methods below for you to see what suits your situation and business plans.
Ways to fund your business can depend on your situation — in this article I will focus on the basis of loaning funds to pay for your business. Please note that you should always seek legal advice on any loan or loan agreement before committing to it.
This could be for funding the purchase of an existing business, to pay for the set up of a new business or the ongoing expenses of an existing business you wish to grow.
If you have assets then that can open up option to be able to access funds as a loan against those assets. Various institutions provide this type of lending including bricks and mortar banks as well as a number of online options. A few that are worth checking out are Ondeck, Commercial Loan Direct and GoKapital.
Its worth shopping around for, as interest rates will vary greatly as well as the terms and conditions for repayment of the loan.
Currently, there are also government COVID-19 loans available which are worth checking out. Go to here to find out about this loan type.
Another funding method is to fund via a family loan from someone close to you who is willing to lend you money. This could be parents, a sibling or a friend. Be careful to treat this type of loan the same as you would a bank loan and have a loan agreement drawn up, including provision for interest and loan term so all parties are clear and protected.
Connecting with a business partner can be another way to fund your business. They can be active or a silent investor. Again, it’s important to have a contract and be sure to have a discussion and agree on the approach and some key performance indicators, in writing, so that both parties agree on and know what the strategy and goals of the business are.
If you’re buying an existing business, you maybe able to negotiate with the seller to seller finance or vendor finance, part of the purchase price. This means that you may only pay for 50%, for example, of the purchase price as the seller effectively leaves 50% in the business and you pay this back to them over 6 to 12 months, or whatever you both agree on, from the businesses revenues. This method can allow you to get into a bigger business than you could from your own funds alone, but it is a more riskier approach as you need to ensure to generate the repayments from the business.
When looking to fund a business then you should consider your risk level because if you’re risk averse, you may not be comfortable taking out a loan. The other thing to consider is what the loan is for i.e. buying an existing business with revenue already being generated can be less risky than loaning money to do a start up from scratch.
If considering loaning to grow a business, you need to carefully look at the timing because you ideally want to be focussing those funds on an already successful product, method or part of the business so you’re effectively targeting the money at something that’s already working.
If you found the above information useful, then visit our free resource website at www.emilyandblair.com (launching July 2021) for a vast library of likeminded guides, checklists and content devoted to online businesses.