If you’re looking to begin a start-up, sorting out your financing is essential. You can have a winning idea and the right business plan to back it up, but this might not be enough if you don’t have the required capital. There are plenty of ways to achieve this though. From external financing to raising your own money, there are all sorts of options for you. Below, we explore which type of financing to select for your business.
Outside financing
Outside financing is where you receive capital from an external source. This could be in the form of small business loans. With these financial packages, you’ll enjoy a lump sum up front before paying this back with interest over a set period. Alternatively, you can attract investment as a form of outside financing. This is where a party will give your business capital, in return for a portion of the profits or shares in the business. Investments can help you grow your business without being limited by strict debt repayments.
How to self-finance
Self-financing is where you use your own money to get your business up and running. The easiest way to do this is if you have existing savings that you feel comfortable investing in your business. Alternatively, you could continue with your day job on the side to give you the financing you need. If this isn’t an option, you could consider bank loans or using credit cards to give you the short-term capital you require to get your business started.
Pros and cons of using your own money
There are some pros to using your own money. By going alone, you can give yourself the time and care to get your business right. This will also give you the opportunity to fully develop your products without having to tend to increasing debt.
On the other hand, there are some cons to using your own money. This route will usually take longer: you won’t have the capital to quickly grow your business. At the same time, if you’re using your own money, you’ll have to make sacrifices in your personal life if you’re running a tight budget.
When you’re running a start-up, capital is crucial. And by following the guide above, you should be in a strong position to decide whether you need external funding.
