There is so much to think about, and so many things that require meticulous planning and execution, when you start a business. Once you have direction, and have decided on your business’ target market and product market, written a business plan and are ready to start getting ready to trade, you’ll probably need some funding to get your ideas off the ground. Knowing what to expect when you start looking for this funding is imperative, so let’s take a quick look at what you need to have in mind when you start looking for business funding.
- Your Personal Resources
The first thing you’ll need to do is decide what a reasonable amount of your personal capital and capacity you can invest into the business. It’s going to be a question that many potential investors will ask you so make sure you have this information prepared and on hand. They will want to make sure that if they invest in your business that you are making personal sacrifices and have a lot at stake, not just the money they would invest. Potential investors will also hold in high regard that you’ve managed to progress your business ideas or practice using your personal resources.
- Type of Business Funding
There are a few different types of business funding and choosing the right type for your business is the most important consideration. Some of the more common ones are:
- Bank Loans – The humble bank loan is still the most common way to fund a business venture. They’re also quite complex, so make sure you know the different options and costs of each different type.
- Crowdfunding – A newer type of funding method called crowdfunding involves pitching your product to a broad audience of internet users and asking them to buy in to your business idea or venture by making a small investment in return for your future product or service.
- Credit Card – Debt comes in many forms to a new business. You might just want to use something as simple as a credit card if your starting costs aren’t particularly high.
- Interest Rates vs Factor Rates
A useful bit of knowledge about how you’ll pay for any loans or financing is to know the difference between interest rates and factor rates.
An interest rate is usually an annual percentage rate that you pay on the current principal, which means you’re only paying interest based on the annual percentage of the amount you currently owe. Factor rates work slightly differently, but they can have a big impact on what you end up paying. A factor rate will be calculated up front and won’t be affected by how quickly you pay back the loan. It’s more predictable because you know exactly what the credit will cost you, but there’s no financial saving for paying it back sooner.
Business funding is a complex topic and doing thorough research will ensure you have the information you need to make the correct and informed decision about how you fund your new business venture.