Best Ways to Finance Your Business in 2018

A small business owner will often need to use multiple financing options for them to get their startup up and running. Traditional options include raising money, taking a business loan, or using money you have saved over the years. Given the current economic climate, it has become harder than ever for businesses, particularly startups to get the money that they need to get off the ground. The following is an analysis of financing options that you ought to consider pursuing to finance your small business.

1. Invoice Factoring

Factoring is a financing option available to small businesses, where the company gets to vend some of its receivables at discounted rates for it to get the cash it needs up-front. Invoice factoring is normally relied upon by companies that have a poor credit history, e.g., apparel manufacturers. These are companies that are required to fill in their orders before they can receive any payments.

Read my expert review of Fundbox financing invoices

Many, however, deem it as an expensive method for a startup to raise finances. This is because the company that is selling its receivables will normally have to part with a fee, which can be equated to a percentage of the overall amount. For instance, if you part with a two percent fee for you to receive funds for thirty days, this is equivalent to paying an annual interest of twenty-four percent.

As a result, many companies have had to look at other financing options including The Receivables Exchange which have made factoring a little bit more competitive. With the exchange, a company is able to offer its receivables to many companies at a go, along with finance companies, and hedge funds. Interested lenders will then have to bid on the available invoices, all of which can be sold one at a time, or as a bundle.

2. Credit Card Financing

It is generally considered risky business for you to use your credit card to finance your small business. In the event that you fall behind on your payments, your credit score will definitely be affected. Additionally, making minimum payments at the end of each month may also leave you in a financial hole that you may never be able to get yourself out of. But if you use the credit card( in a responsible manner, it can be able to get you out of a jam. You could even use it to extend the business’s accounts payable enabling you to shore up its cash flow.

3. Apply for a Bank Loan

The last few years have seen lending standards becoming much stricter. But the good news is that there are banks such as Bank of America and J.P. Morgan Chase that always earmark funds to be used in financing small businesses and startups. So why not try your luck and apply for a bank loan?

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4. 401(k) Financing

If you have been employed for the last few years and have been contemplating starting a business of your own, the funds that have been accumulating in your 401(k) can be very appealing. The current provisions in the tax code have made it possible for you to tap into these funds to finance your business without being penalized, provided that you follow all the correct steps. Although the steps are simple, they are quite complex when approached from a legal perspective.

If you opt for 401(k) financing you need to find someone who is well versed with the establishments of C corporations. Whoever you settle for should also advice you on the best retirement plants to use so that you can move your retirement resources into them. It is important to remember that by tapping into your 401(k) to finance the business, you will essentially be investing the money you had saved up for your retirement. Therefore, if things do not work out for you, you will not only lose the business, but the savings as well.

How to Get Money from Your Retirement Account to Start a Business

5. Try Attracting Angel Investors

Whenever you need to make a pitch to any angel investor, you need to remember that all the old rules are still in application. This means that you need to be concise, stay away from industry jargon, and have a good exit strategy in place. Some of the tips you can use to attract angel investors include:

• Add experience to your team: Any fears an investor may have will normally be eased if they see an experienced person being part of your management team. All you need is someone who is highly experienced on the team, regardless of whether they are paid or not. This shows the investor that the company has the potential to weather a touch economic climate.

• Do not start a business to make quick money: You need to determine whether you started the company because you are really passionate about that industry, or whether it is because it is trend that you think you can cash in. Angel investors are always able to spot the difference between the two, and will normally not give any attention to companies being used as get-rich-quick schemes.

• Ensure you remain in touch: Angel investors may at first not be interested in the business, more so if you do not have a proven entrepreneurial track record. But there is a need to ensure that you loop them in whenever there are major developments in the organization, e.g., when you are about to have a big sale.

6. Raise Money from Friends and Family

Reaching out to friends and family members is one of the most popular ways of financing a small business startup. You should, however, note that the moment you turn your loved ones into creditors, you risk ruining personal relationships, and you may also jeopardize their financial future. A common mistake made by many entrepreneurs is making the approach before they have completed their business plans.

To ensure that this does not happen to you, you need to provide them with evidence-based assessments as well as financial projections for the startup. This should provide them with a clue on when they can expect to receive their money. It is a great way of showing your investors that you are taking their money seriously.

It can be difficult to find financing when you are about to start a business. But the six options discussed above should help you get the finances you need to get the business off the ground. Be sure to weigh all your options before making a decision.

Author's Bio: 

Serial entrepreneur, after doing "time" in corporate America, who has learned about what products and services really work well in business today. You can learn from my experience and my associates as we shop from the internet for tools, supplies and information to build our businesses and improve the lives of our family and ourselves on our site

My strongest belief is that the safest, most secure and most lucrative job you can have is owning your own business. I learned this valuable lesson the hard way by investing time, energy and emotion into a corporate career only to be fired unceremoniously -when I dared think creatively outside the box. My entrepreneurial journey to starting my own business was first by necessity but then turned into a great blessing of prosperity and freedom. Graduating from the school of business hard knocks and learning how to start, manage, and then sell my business for over $1,000,000. Learned more about real life business this way that I learned in my four years at the NYU School of Business.

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