The business world orbits around capital. Financial activity stimulates economic growth and keeps companies prosperous. However, not all businesses start out with an adequate amount of funding, so business owners need to explore financing options. If fledgling companies do not have proper capital to get their business off the ground, they won’t have a high chance of survival against industry competitors.
Business owners have the option of taking out a loan at a financial institution. Financial institutions, such as banks or credit unions, offer lines of credit to businesses that are just starting out or require financial assistance for improvements or new developments. To qualify for a loan, business owners must go through an application process. Most financial institutions require businesses to provide proposals for how the money will be used and why the funding is necessary. Interest on the loan will be charged at either a fixed or variable rate.
Another financing method is to find a venture capitalist to fund your business endeavor. Venture capitalists usually want to invest in high-growth companies and seek out companies that show promising signs of a high return on the investment. One of the benefits of this financing method is that venture capitalists are not afraid to take risks, whereas financial institutions like to lend money to safer enterprises. According to Entrepreneur.com, a typical venture capitalist invests between $500,000 and $10 million.
Home Equity Line of Credit
Taking out a home equity line of credit on your home is another method for financing your business venture. Business owners who also own homes can access money from their home equity to fund their company activities. Interest on home equity lines of credit is often lower than that charged on a commercial bank loan.
If you have friends and family with money, you might consider asking them for a friendly loan. They may have an interest in your business and will want to invest in it, expecting a good return on their investment. Or they may wish to loan you the money and expect only that they will be paid back. This option is more desirable than commercial bank loans that charge high interest rates.