There are common myths about raising money to start a small business. The biggest myth is that you have to obtain a loan and worry about high interest rates. Another myth is that qualifying for an investor is difficult or impossible. There are many different methods that a business owner should consider to raise money.
Merchant Cash Advance
No money is being borrowed when you obtain a merchant cash advance. It’s not a loan, and you don’t need to make repayments or worry about interest rates. Instead, sell a percentage of your future debit or credit card sales. This option is ideal for business owners who have bad credit and cannot qualify for a loan. It’s recommended for those who are already paying back loans.
Investor or Capitalist
An angel investor is an individual who provides capital for your business and receives ownership equity in return. This type of investor usually provides funding in the beginning stages of the business’s startup.
A venture capitalist also receives equity in exchange for providing capital. This type of investor usually funds businesses, such as technology, that are considered too risky for traditional bank loans. Compared to angel investors, venture capitalists tend to have backgrounds in business, science or technology.
Crowdfunding
Crowdfunding is a lesser known solution to raising funds. The project works by having a lot of people make small payments or by having a few people pay large sums of money. The key to being successful is convincing people that your business is innovative, significant and worth the investment. It’s important to review best practices crowdfunding options, such as setting goals and designing reward tiers, as part of your long-term strategy.
Microloan
A microloan is a small, low-interest amount of money that is lent to impoverished entrepreneurs. These borrowers are not steadily employed, have low to no credit and lack the security needed to back up the loan. This option is widely available in developing countries, but it’s becoming more popular in the U.S. In addition, many banks claim that repayment rates are highly successful.
Not everyone has the wealth to build a business from the bottom up. You’ll save a lot of time and effort by looking for alternative funding sources besides your own savings account. The next step is to see if you qualify for this type of funding. Overall, know all of the options available to you.