Starting a business in today’s world is a very attractive thing for young people, and a very rewarding endeavor. However, starting up the business is the tricky part. Once you have an idea of what you want to do with your business, more ideas just keep flowing, but implementing all of these ideas would get quite expensive, and you will need money. There are many ways to get funding for your business, and how you fund it is entirely up to you. The two most common ways of funding small businesses is by either asking your family for money, or financing business using credit cards. Both of these methods have pros and cons.
Asking your family for money to start your business is a great way to get some funding, and many businesses have been successful because of it. In fact, Bill Gates, founder of Microsoft, got his first funding from friends and family. Chances are that if you ask your family and friends for money to start a business, they will support it. The downside to asking your family for money would be that they might not have enough money or they can’t continue funding you if your business isn’t successful immediately.
If your family and friends can’t fund your business, you should start using credit cards to finance your business. Credit cards are great since the bank can’t really deny you a loan unless you have extremely bad credit. Sergey Brin and Larry Page, founders of Google, started their business by using three different credit cards. There are many pros and cons of using a credit card, so it is up to you to decide whether it would be beneficial for you to use a credit card or to find another method of funding your business. Here is a list of the pros and cons:
- Instant loan
- Not personal
- Can be used everywhere
- Can purchase things over the internet
- Incentives for using the card
- Potentially building up credit score
- Potentially ruin credit score
- Interest rates
- May cause you to spend over your budget
- Could go into debt
As you can see, using a credit card can be risky if you are not smart about it. However, if you are smart about using your credit card, you can basically you can actually make it work out well for you.
How to Stay Out of Debt
Debt is one of the easiest things to get into, but also one of the hardest to get out of. The best way to get out of debt is to not get into debt in the first place. Staying out of debt can be quite tricky sometimes, since there are lots of expensive things these days that are just tempting your credit card. Starting a business can also be tough if you are trying to stay out of debt. That is why when you are starting the business you need to have other options other than just using a credit card. The best way to start up the business would be using your own cash, but that can be extremely expensive. That is why you should only get into debt when you know you can be able to pay it back.
Your business may not be successful within the first three months of opening it up, but that doesn’t mean that you should quit before you even start. The best thing to do is to be prepared for the worst. Always have a three month emergency fund that is in cash. If you pay $500/month on your credit card to keep the business running, make sure you have $1500 so that you will be able to keep it running. If you don’t think that you will be able to take the risk of using credit cards, then you can look into your other options for financing your business.
Other Ways to Finance a Business
There are obviously other ways that you can finance your business, these two aren’t the only ways to get money to start up your business. They are just the most popular. You have options such as crowdfunding platforms, government grants, small business loans, and most importantly from your own pocket.
These days there are lots of websites being built for creative ideas that are basically kickstarters for small businesses. These are called crowdfunding platforms and are extremely useful for startup companies. To use these, just go on one of the websites and post your idea and people will basically donate some money for this idea to happen.
Government grants are also a huge way to finance your business. Many businesses run on government grants, especially in the technology world. Basically if you have a business that is already started (can’t be a startup) then you can apply for a government grant. If you are a business that is innovative or is providing something for the public, then chances are that you will get the grant. You probably won’t get a grant for something that isn’t as innovative (like a fast-food restaurant) then you might not get a grant unless it has something innovative (like it is an all-healthy fast-food restaurant). Of course, you can always apply for grants from non-profit organizations if you don’t get the government grant.
Loans are always a pain to take out, but sometimes this needs to be done. That is why most banks offer small business loans, to help you with financing your small business. These loans are extremely helpful to small businesses because they can loan tons of money with a very low interest rate. Even though taking a loan isn’t the most appealing choice, this is really one of the best ways to get all the money that you will need for your small business, as long as you can pay it back. You can also apply for a business credit card which can help when making purchases for the business and not just for yourself.
The Final Word
The final word about financing a business is that it really helps if you use your cash. If you simply don’t have enough, you can always rely on credit cards as long as you pay them back. If you are not sure if you can, look into your other options, as you have many.