Entrepreneurship is huge right now. The internet has made it incredibly easy to start a business. There are a million and one business opportunities to try, many of which are online. It’s not risk-free, but if you are suitably savvy, you can minimize your exposure to financial risk and maximize your chances of creating a successful business.
All businesses need start-up finance and or a business line of credit. Even if you are starting small, the chances are good that you will need at least a computer to get going. Whether you need a small amount of cash or a huge start-up loan will depend on the type of business you embark upon, so before you begin your search for finance, create a business plan.
Business plans are essential. This is your blueprint for the business going forward. Think carefully about what you need to create a successful business, including equipment, premises, staff, and stock. This information will be used to work out the cash flow for the business.
Different Types of Finance
There are many different ways to finance a start-up. Not all of them will be right for your business, so examine your options carefully before you make a decision. You will probably need extra start-up capital in the first year of trading, so make sure any money you borrow is sufficient for your business’s needs.
Savings are the most obvious place to start if you need money to finance a business. It is always sensible to have money set aside for a rainy day. I wouldn’t advise emptying your savings account to start a business, as you would need the cash to cover your bills while your business is established, but it is always better to use your own money than borrow cash, as it’s free.
Small sums of money can be borrowed from a credit card. The best way to do this is to look for an interest-free card, preferably one that offers interest-free credit for an extended period. Any money you borrow won’t cost you anything in interest, so it is a cheap method of borrowing. However, if you need to borrow more than a few thousand dollars, it is better to look at alternative methods of finance.
Loans from Friends and Family
Friends and family are a good source of start-up capital, but you must be careful not to abuse people’s trust. One example is the person who persuades an elderly relative to invest in a high-risk venture, only to see their relative’s money disappear into the ether. If you do elect to borrow money from a friend or relative, have a legal agreement drawn up that specifies the terms of the loan, including any interest due. That way there will be no misunderstandings.
For larger loans, you may be able to release equity from an asset such as your home. There are lenders who provide equity loans. Refinancing a property is one way to release equity, and if you need a larger sum of money, this strategy works well. However, what you need to bear in mind is that if your business goes bust, you could end up losing your home.
A business loan is a popular way to finance a business. High street and internet lenders are all happy to offer loans to small businesses, as long as they tick the right boxes. This is when you will need a cast-iron business plan, as a lender will look at your business plan and use it to decide whether (or not) your business is worthy of a business loan. It’s often easier to approach your family lender, as they know you better, but don’t be afraid of shopping around for a better deal, especially if you are in a niche business sector.
Crowdsourcing is a relatively new way to raise money for a new business. The premise is quite simple and there are plenty of popular crowdsourcing websites out there for would-be entrepreneurs. All you have to do is “sell” your business idea so prospective investors can decide whether (or not) your would-be business is worthy of their money. In return, investors will expect a return on their investment. This could be interest on their loan, or a share of the business.
This is a snapshot of the main ways to finance a new home-based business. Since you are unlikely to need considerable sums of money if the business is initially based in your own home, look at using your savings or credit cards in the first instance.