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Tips for Funding a Small Business

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Does this sound familiar? You’ve got a great small business idea, but all you lack is capital, or maybe you have some savings, but you aren’t sure if you should use it to fund your business. Funding a small business is one of many challenges you will face as an entrepreneur, but it also one of the first hurdles you must clear on the road to success. Your own savings as well as various types of loans are all ways that you can get the money you need to fulfill your dream of running your own company.

Self-Funded

Some people use their own savings or even credit cards to fund a new business, and there are both risks and rewards to this approach. The risk is that you could lose all your savings or end up in overwhelming credit card debt. The reward is that if you are successful, you do not need to pay back lenders or share profits with investors. However, you should proceed with caution and only spend what you can afford. If you have dependents and financial obligations, you should probably limit how much of your own money you put into a new business venture.

Small Business Loans

For many people, the first stop for raising money is their local bank. Credit unions can be another source of a business loan. The Small Business Administration can connect people to lenders who may be willing to loan money. Banks and other traditional lenders are not the only sources of business loans. If your business is already operating and you need a small loan to keep going, you may be surprised at some of the places you can find it. For example, if you have a business account with PayPal, you might be eligible for one of their Working Capital loans.

Personal Loan

You might not qualify for a business loan as many lenders are unwilling to give seed money to a small, untested business idea. However, you could qualify for a personal loan that you then use to fund your business. Your eligibility for this loan will depend on your credit score and income qualifications, and while this liability will personally be your responsibility, it can be an excellent way to get the funding you need.

Venture Capitalists and Angel Investors

You may find wealthy individuals who are looking to make a profit by investing in what they believe to be successful business ideas. Angel investors may tend to be more hands-on than venture capitalists. The advantage of these types of investors is that they can inject a significant amount of cash into your company. In addition to funding startups, these investors often come along when a company is looking to expand in a big way. The drawback is that they are looking for a return on their investment. This can make getting their attention difficult for people who do not appear to have an idea that promises large-scale profits. It also means that these investors will have some equity in your company.

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Sean Jacobson

I'm Sean, a former HR and business consultant providing you insights into the business world for Leader to Leader.

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