Popular Funding Alternatives for Small Business Start-ups

Business entrepreneurs have their hands full, accounting for all the details surrounding a start-up venture. Commercial success always starts with a marketable idea, but the road from conception to profitability is full of challenges. Before bringing home their first sale, independent business operators must clear countless hurdles, ranging from well-anticipated matters, to unforeseen crises that can derail a budding start-up. Among the most pressing concerns for small business entrepreneurs, finding funding is a top priority.

If you’ve explored self-employment or begun business planning, you probably recognize some of the costs of getting underway. Fortunately, there are several types of funding available for motivated entrepreneurs armed with salable skills and concepts.

Costs to Consider

Planning and preparation are crucial concepts driving small business success. Before taking any other steps toward a proposed launch, an effective entrepreneur brainstorms every aspect of the venture, projecting all the foreseeable possibilities and contingencies for shaping a profitable business.  Start-up expenses and ongoing operating costs are key considerations at every stage of planning and preparing for your commercial venture.

Accounting for your expenses enables you to accurately project potential profits and to identify your business break-even point. Reconciling costs can also help you attract investors and assure lenders you’re a stable funding risk. And a comprehensive financial forecast provides tools for analyzing business taxes, allowing you to structure your business enterprise for the greatest benefit.

Though each start-up faces unique financial demands, the Small Business Administration (SBA) identifies these and other common business expenses.

• Licenses and Permits
• Office, Shop, or Showroom
• Insurance
• Legal Fees
• Accounting Costs
• Payroll
• Marketing
• Inventory
• Online Promotion
• Equipment

In addition to these customary costs of doing business, each commercial endeavor also takes on spending that’s unique to its trade or industry. Most businesses can be roughly classified in three categories: brick-and-mortar ventures, online industries, and service businesses.

Each type of commercial operation has different requirements, so costs vary. Whichever classification applies to your business concept, your goal is putting a price tag on every conceivable expense you may encounter. Once you’ve compiled an exhaustive list of anticipated expenses, tallying the results shows your total projected start-up cost.

Equipped with a comprehensive business plan, including start-up costs, detailed spending breakdowns and revenue projections, your next step is sourcing the funds needed to get your business up and running.

Pay Your Bills with These Business Financing Options

If you thought financing your business venture would be the hardest part of self-employment, you may be surprised to find several creative funding alternatives at your disposal. Each method of raising capital has advantages and drawbacks, so it’s up to you to measure the benefits of each approach.

• Personal Savings – Personal resources are sometimes used to stake independent business ventures. If you’re sitting on a sizable sum, looking for an active investment opportunity, starting a business with your savings may be the easiest way to get off the ground. On the other hand, your personal nest egg serves other valuable functions in your financial life, so you should consider all the angles before draining your savings account to start a business.

Savings are used for financial emergencies in most households, so spending your reserves on business start-up expenses might leave you unprotected when money runs short at home. Your personal savings accounts also add to your net worth, helping you secure credit. Depleting your savings for business spending may make it harder for you to qualify, when personal financing is needed.

• Crowdfunding – The rise of Kickstarter and other crowdfunding platforms has changed the way people think about small business funding. The crowdfunding strategy generally trades access to products and services, as well as other perks, for partners willing to kick-in on business ventures. The novel, progressive approach circumvents some of the traditional obstacles that interfere with business finance, but crowdfunding isn’t for everyone.

In order to attract the funding you need, your product or service concept has to win over a group of people willing to invest in your business. For that to happen, you need a highly imaginative, innovative idea that appeals to a substantial cross-section of observers who all believe you’re on to something. It’s a tall order, but there are plenty of cases to study, showing how crowdfunding really does work for some small business entrepreneurs.

• Credit Cards – Business credit cards provide fast, flexible funding you can use to cover start-up expenses. Though it’s easy to qualify with a reasonable personal credit history, credit cards are not good long-term business funding solutions. Credit card interest rates are too high to continually carry-over commercial balances from month to month.

Special business credit cards offer perks such as introductory low rates, cash back, travel, and other incentives. Most of the programs are only worthwhile if you can take advantage of the benefits, without rolling your balance and adding ghastly monthly interest charges. Otherwise, it makes more sense to sparingly use revolving credit, and pay your entire balance for each statement period.

• Business Lenders Online – Traditional banks and brick-and-mortar lenders write business loans, but many entrepreneurs now turn to online lenders for working capital. The application process for online funding is often streamlined, compared to the approval process used by banks and credit unions. And online business loans can be funded very quickly, for qualified applicants.

• Friends and Family Financing – Getting a loan from a friend or family member may sound like a perfect small business funding solution, but the arrangements don’t always work out for independent entrepreneurs. Despite all parties’ best efforts to spell out loan and repayment terms, confusion can arise, leaving someone feeling slighted. And though most of the agreements are for hands-off funding, well-meaning friends and family lenders may try to have a say in your operation.

Each case is unique, so you shouldn’t summarily dismiss family loans as a potential source of business funding. However, you should always enter into such agreements with legal documentation in place and clear-cut expectations between all involved parties.

A successful small business launch relies on hard work, innovation, and strong attention to detail – but you’ll also need some cash. If your business proposal is coming together and you’ve started outlining specific start-up costs, exploring these and other funding alternatives can help you get your hands on affordable financing, without delays.