Top Ways to Obtain Finance for Business

Top Ways to Obtain Finance for Business

Whether you are looking for funds for a startup, capital for expansion or money to help you through tough times, it can be a challenge to find finance in any economic climate. However, in today’s competitive market, it is tougher than ever to get finance for business, no matter the purpose. There are a number of alternatives that businesses can consider when they are looking for finance and use whatever seems feasible to get the funds they need. Listed below are the top ways to get finance for business:

Think about factoring

This is a finance method in which companies sell their receivables at a reduced price in order to get their hands on some cash up-front. It is often used by businesses with poor credit or certain businesses that have to fill orders before they can get paid. However, it should be noted that it is an expensive way of raising funds because companies have to give up a certain percentage of their receivables, which is not feasible in the long term.

Consider a bank loan

When it comes to obtaining a loan, the lending requirements have gotten stricter over the years, but some banks do set aside funds for giving loans to startups and other similar businesses. As long as you have the numbers to support it, you can opt for a loan in order to raise finance for business.

Tap into your 401(k)

If you are unemployed and thinking about starting your own venture, you can tap into the funds that you have accumulated in your 401(k) over the years for getting finance for business. There are provisions in the tax code that enable you to tap into these funds without a penalty, but you have to follow the right steps to take advantage of them. While these steps are simple, they can be complex in legal terms, so you will need an expert’s assistance for this purpose.

Look for angel investors

Another popular method you can explore to get finance for business is by pitching your idea to an angel investor. The old rules are still applicable here i.e. you need to be succinct, have an exit strategy in place and avoid jargon. The economic turmoil in the last few years have made things even trickier. You can engage angel investors by adding some experience on your team. Doing so can assuage investors’ fears about your business’s ability to survive in this tough economy. You need to know your stuff when you are pitching to angel investors. If you falter even a little bit, the investors will lose interest.

It is also essential to remember that being a fad follower is not going to help you win the interest of an angel investor. If you are getting into business just to cash in on a trend, investors may not be interested because it will not last long. Make sure you are passionate about your idea in order to convince investors of the same.

Start a crowdfunding campaign

If you do some research, you will realize that there are numerous crowdfunding success stories out there and you can also use it for getting finance for business. You can also be a success story if you have the right product and make the right pitch. Through crowdfunding, you have the chance of connecting with like-minded people who you wouldn’t have engaged normally. It also provides you with the opportunity of gauging their interest in your product and learn what appeals to people and what doesn’t. This can also give you ideas for improving your product as well as your pitch.

Ask friends and family

There is no need to ask your friends and family to help you in raising finance for business. However, bear in mind that you need to have a formal business plan in place before you ask them for any financial assistance. This is because you are risking their financial future and may end up jeopardizing personal relationships if things don’t work out. Provide them with formal financial projections and also give them an evidence-based assessment of when they will see their money again. It shows them that you are taking the money seriously and not joking around.

Look for venture capital

Here you make some big bets as venture capitalists are professionally managed funds that are interested in investing in businesses with a huge potential. You can explore them as an option when you want finance for business, but it should be noted that they invest against equity in a business and exit when there is an acquisition or IPO. The good thing about VCs is that they are more interested in the day-to-day running of the business as opposed to angel investors. Therefore, you can get access to mentorship and expertise. This method of getting finance for business is appropriate for a firm that’s already established and generating revenues.

Get a microloan

The lack of collateral or credit history or the simple inability to get a loan through a bank doesn’t mean that you cannot get finance for business. One option that you can explore in this situation is to opt for a microloan. This is a small business loan and it is usually so small that commercial banks are not just not interested in offering them. Instead, a microlender, which is a non-profit organization, will provide you with the funds and it works differently than banks.

Microlenders usually ask for less documentation than banks, offer smaller size loans and also have a more flexible underwriting criteria. Nonetheless, you need to know that they may charge slightly higher interest rates than banks as they are taking a greater risk.

Other than these options, you can also go for bootstrapping i.e. self-funding to get finance for business. Tap into your savings if you have any and use them to get started as it is often difficult for first-time entrepreneurs to get funding because they don’t have the required background.

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