Business Financing is Always a Challenge – Simple Ways to Finance your Startup

investing in business

You have been nurturing an awesome idea, you have set the name of your business in your mind, you have enough of unused garage space to initiate your dream business but you don’t have enough cash to take the final step. This is not a surprising situation as most of the prospective business owners face the biggest challenge of not having cash to finance their business. This leads to so many deaths of businesses even when they are at their nascent stage. In the crowded competition, financing a small startup is the biggest challenge. There is an estimate of 28 million small business firms in the US and among them around 80% get their funds from bank loans, lines of credit and credit cards.

It goes without mentioning that it is tougher to obtain funds through such avenues in the present financial state. Although business loans are one of the many ways to finance your project, there are many other ways too that you can take resort to. Let’s check out what they are.

Factoring can be considered

Factoring is one the most common financing method where the company sells off its account receivables to get up front cash immediately. This process of factoring is often used by companies which either have bad credit score or by those like apparel manufacturers which have to make payments to get orders way before they get paid themselves. But before you take a plunge into this, remember that factoring is an expensive way of raising funds. Companies have to pay a fee and in case you pay 2% fee for obtaining funds a month in advance, it is almost equal to a yearly rate of 24%. This is why business firms have earned a bad reputation.

startup financing

Obtain a loan from the bank

Although it is true that standard of lending has got stricter but there are banks like Bank of America and JP Morgan Chase which have started giving surplus funds for small business lending. So, when you have options, why don’t you apply to them? You just have to fill out their loan application and wait for the funds to be credited to your account.

Use your credit card

This is one of the riskiest ways of funding your business because whenever you fall back on the payments, your credit score will suffer entirely. And in case you make the mistake of paying only the minimum amount every month, you will create a hole out of which you can never get out. So, make sure you take resort to this option only when there are no other alternatives left.

Raid your 401(k) account

If you’re unemployed now and you wish to start off with a business of your own, you can raid your 401(k) account. Due to the tax code provisions, you can tap into your retirement account without accruing any penalty if you follow the best steps. The steps are simple but they’re legally complicated and hence you may seek help of an advisor who can help you with this.

To summarise, business loans from SBA might be a worthy alternative to financing a startup but you can still take into consideration the above listed alternatives as well. Whichever option you choose, make sure you know the pros and cons of the same.