How to Secure Financing for Your New Business

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Starting any new venture costs money, but opening a new business is one of the ventures that many new business owners underestimate in terms of finances. 

With the right planning, many small businesses succeed, but if you underestimate the costs you will need until you start to turn a profit, you could join the 20% of businesses that fail in their first year. Realizing how much money you’ll need to get your business up and running is the first step, but once you’ve made your financial plan and laid out the actual and potential costs (plus a buffer of roughly 15-20% of that budget to be safe), how do you secure the actual finances?

1. Tap into your savings or equity

One of the easiest ways to finance your new business is to use your own money. Ideally, if you’re opening a business, you would have been saving for a while, putting away money until you had enough to start your new venture. Then, you can pay for your business outright without having to worry about any other avenues or debt. 

This ideal situation most likely won’t apply to everyone. Some small business owners can leverage their homes as equity and take out a home equity line of credit to help fund their business. This is a risky move because if your business fails, you can lose your home. So only go down this route if you have a solid plan in place. 

2. Get a loan from the bank

You can apply for a small business loan from the bank to help get your business off the ground. Whether you need a few thousand dollars or a few hundred thousand dollars, you can find the right small business loan for you. Do your research and check out comparison websites like Innovative Finance who explain small business financing. 

Do your best not to go into the process blind, but rather have an idea of what you’re looking for in a small business loan. 

3. Use your credit card

This is another risky tactic because if you fall behind on your credit card payments, your credit score will suffer. If you only pay the minimum amount on your credit card balance each month, you’ll end up in debt that you can’t recover from. If you use your credit card to bridge a gap you know you will be able to pay back at the end of the month, it can work in your favor. Just remember to use your credit card responsibly and not like a fallback option. 

4. Find investors

Pitching to investors is a great way to secure financial backing. To win over an investor, come up with a pitch that’s succinct, free of jargon, and explains your market assessments, marketing and sales plans, and competitive analysis. If you want investors to believe in your company, you need to show that you are an expert in the market that you want to enter, as well as fully understand your target customers and competitors. 

5. Crowdfund

Crowdfunding is a fun but effective way to secure some money if you’re looking to create a niche product or start a low-cost project. Plenty of projects have been funded on sites like Kickstarter, so if you’re just looking for financial backing for a one-off idea rather than long-term funding, this could be the right avenue for you.