“Requires money to make money.” Said it was rather true. To make or expand your business kingdom, you will need funds to cover your expenses until your income enters. It might take 2 months or 2 years, and may need $ 200 or $ 200,000. The money can always be found, one or another way, but you need the right method for you.
Money comes from three sources, each with its own benefit, danger, and cost. You might use two, if it’s not third of this type as long as your company – and you have to understand each of them to evaluate that will work for you today, tomorrow, and 5 years from now on.
Method # 1: self financing
When business owners have cash, they usually look at their own bank accounts first as a simple form of financing. Self financing can be broken down two different ways, each with their own consideration. First, there are two types of self financing: lump-sum and bootstrap. Second, self financing can come from you, personally, or can come from your current business that finances other businesses, ventures, services, or product lines.
Lump-sum financing is when you have a fixed amount of money from business or investment, inheritance, personal savings, 401 (k) cash-out (rarely good ideas) or other cash amount that can be used to finance business businesses. The amount you have is relatively corrected and can be seen and tracked as a one-time investment.
Bootstraps continue to be used by most small businesses, usually without knowledge conscious. Bootstrap is where you pay a new business or develop through cash flows that enter from other sources. Other sources may be your daily work, your partner or partner or business, business lines or profitable products, or passive investments (real estate, mutual funds, and bonds).
Self financing works when you need a small amount of money, when you have a large amount of money, when you feel comfortable with risk, or when you need money quickly. It also works when profitable businesses can absorb invest in new efforts until new efforts take off; Assuming adequate cash flow projections have been made to ensure new businesses are not leather profits that never end.
Method # 2: Debt Financing
Debt financing earns money that must be paid back to the lender, usually with interest. Similar to self financing, debt financing can include both using your personal credit and credit and business security to get loans or credit.
Personal debt financing is available for most business owners. If you have a decent credit rating, you can get a credit card, home equity credit lane, or a loan, without telling the bank about your business. You can get a loan from family members or friends who know about your business business, but who might not demand strict standards as a formal bank.
Businesses can also obtain credit cards, credit lines, and loans from banks and credit unions. Loans guaranteed by small business administration (SBA) are available through banks that provide credit pathways to small businesses that may not be able to obtain credit without SBA guarantee. Alternative debt financing options such as prosper.com enable individuals and businesses with lower credit rating to get financing from various sources. But this private loan will usually be at the interest rate higher than SBA loans.
# 3 Methods: Equity Financing
Equity financing provides ownership (equity) in your business, and the potential for future profits, in exchange for money (capital) today.