So, you’ve decided you want to become an entrepreneur and go into business for yourself. Now, what’s next? No matter your idea, or entrepreneurial endeavor, there will be a need for financing. Don’t let money be the reason you can’t move forward. We’ll discuss some strategies and options you can consider to get your business started.
Self-Funding without a Loan
Self-funding could be done through saving funds prior to starting or using a portion of your income to actively fund the business. You should first consider the costs to start up the business and what tools are needed. If the endeavor doesn’t require too much upfront costs, you could consider setting aside a small portion of your current income to pay for your tools. For example, if you want to start a craft business you could purchase a certain number of items to create your product. Then the proceeds from the sales could be reinvested into your company to continue to buy more materials for products. However, if startup costs are more than you can currently afford you may need to consider other opportunities or delay when you would start, to allow time for saving.
For those that do not currently make enough to save or would like to try to start their business a lot sooner, seeking investors could be a great alternative. You would need to create a business plan for your potential investors to understand what you are doing and how you plan to produce a return if it is a for-profit business. If the business is to be non-profit, the investors will need to understand how the funds will provide for the public or the intended audience.
A factor to consider when seeking investors is whether those investors would like to have a certain level of authority over the work you plan to conduct. If investors require control for their investment, you will need to assess your comfortability with this. If you prefer autonomy of your work, this would not be the funding alternative for you.
Loans and Lines of Credit
For those that don’t want to self-fund or have investors, seeking a loan or a business line of credit could be the option for you. Similar to investors, seeking a loan may require you to have a business plan. Obtaining a loan or line of credit could be done by applying at your local bank or applying for a small business loan from the federal and/or your local state government. If you fear your credit might not make the cut, there are sites like Upstart that approve individuals with little to no credit. Remember, you will be obligated to pay back this loan with a certain level of interest.
If you don’t have the financial capacity to self-fund or obtain a loan you should consider researching grants. For those who don’t have prior knowledge of grants, it is essentially free money with no expectation of repayment. In order to get a grant, you will likely be required to submit an application and supporting documentation. External investment was discussed in a prior section; however, grants were not included in that discussion due to their differences. Grants differ from investment mainly in the aspect of the providers of a grant would not be entitled to a portion of the profit or a return on their initial investment.
When researching grants, you will find that they can be industry and even demographic specific. Certain industries and groups of entrepreneurs are strongly encouraged. If you’re a woman or an individual from an underrepresented demographic you may find more grant options. Also, with the impact of COVID-19, individuals who have been impacted by the pandemic may find additional grant opportunities.
There are a ton of grant opportunities that are contests, these can be a lot harder to obtain as many people will be seeking these. For other opportunities, you can research any funds offered by your state government for the purpose of encouraging local business development. If you are in a state with minimal offerings or you’d just like to know your options, research the federal offerings. State and federal small business grants are a great place to start.
Have a business you want to start? Consider and research the financing options listed above.
No matter the option you choose, please be advised that different strategies could pose different tax implications. Ensure to consult a tax advisor to understand implications related to your specific business.
Have any more financing strategies for entrepreneurs? Let us know in the comments below.
This article originally published on GREY Journal.