If you’re looking to start a business, before long your thoughts will turn to how it’s going to be funded. After you’ve come up with your “big idea” there’s no choice but to consider how it will be financed! Here we look at several ways to give your business the cash injection it needs.
Many people do not want to borrow to achieve their dreams of owning a business, and many like the concept of bootstrapping to launch their startup. But one thing that’s important to understand is that there are multiple ways of self-funding a business.
While you may think “self funding” your business simply means gathering up all the cash you can get your hands on (utilising savings, selling possessions, calling in favours, borrowing from friends and family) and then investing it all in your startup, truth be told, there’s more to self-funding a business than that.
Sure, to “self-fund” means to personally take charge of the financing of your business. But, when done carefully, there’s nothing to say that you can’t also take out a manageable personal line of credit, utilise a low interest credit card, or put some money into a yielding investment to help you realise your business goal.
With self-funding, the goal is to ensure that your business is launched without necessarily getting the business itself into debt; that is, the business owes no one.
So, other than the common self-funding methods you know, what other methods are there to raise the capital your business needs? Let’s take a look at them below.
#1 – Home Equity Loan
If you’re a homeowner, and your current home value far outweighs your remaining mortgage balance, then tapping into a home equity loan or home equity line of credit (HELOC) might be a great option for your business launch.
With a HELOC, your business will be provided with a lump sum to get started, and you, as the business and house owner, will only need to continue making your normal mortgage payment – only that this time, your outstanding balance will increase. Additionally, this type of funding strategy also offers an advantage over traditional business loans as the interest rates are often lower.
How much capital can I get from my home equity? Let’s say that your home is currently valued at $400,000, and you still have a mortgage outstanding of $100,000. This means that your home equity is currently at $300,000. Typically, most lenders will offer to borrow you between 75% – 90% of the value of your home equity.
#2 – Make an investment first
If you don’t mind a little risk, and have some cash to work with, you could consider investing it in a profitable trading platform, from which you can (ideally) generate enough profit to launch your startup. Although this strategy might take a while before it yields the sort of capital you desire, with patience, you’ll can get what you need in the end.
For ideas, you could invest in stocks (or managed funds if you want someone else to do the investment selection for you) foreign exchange, term deposits, and even perhaps cryptocurrencies if you’re game.
If you’re trading on the share market or forex (foreign exchange), you should be careful with your choice of broker and trading platform. However, with cryptocurrency trading, it’s critical to steer clear of scams and focus on learning the trends to reap the rewards you seek.
And, if you’re particularly savvy, since the cryptocurrency market is open 24/7, you are now able use trading bots to improve your chances of success. These bots, which can be found on this site, will help you automate your trades even while you sleep. This reduces the chance that you may wake up in the morning and be greeted by pleasant (or unpleasant) financial surprises.
#3 – Life insurance
Although not many people know this, your life insurance policy is one of the very few policies that allows you to take out a percentage from your insurance whenever you need it. This might be great news if you’ve been stowing money away into a life insurance policy all these years, as now may be the time to call in for it!
However, it’s important to note that the insurance company will most likely charge you an interest rate over any amount you’ve taken from the policy. But on the plus side, you won’t necessarily need to pay the loan back. Instead, any amount you borrow will be deducted from the cash value your beneficiaries will receive when you die.
#4 – Credit Cards
Although credit cards might appear like a tricky – and somewhat dangerous choice to finance your business, you can still get the best out of them. Simply shop around for the best card providers, and the cards that offer you the best perks in the long run. Additionally, since you don’t need to tell your bank or card issuer what you intend to use the money for, it’s quite easy to tap into your credit cards to finance your business whenever you need to.
#5 – Personal savings
And, of course, you can follow the traditional method of self-funding a business. Save, save, and save until you have a sufficient amount of capital to kickstart your business dream.
The growth pattern of a self-funded business
A self-funded business usually grows through the following stages:
Beginning stage – This is the stage where you launch your business based on the money you’ve been able to gather from your personal savings, HELOC, investments, or the money you’ve borrowed from friends.
Customer-funded growth stage – Once the business is stabilised, and you have a steady stream of customers, you simply use the money generated from customers to keep the business operating (ie customer advance payments or revenue generated.)
Credit stage – This is the stage where the business really needs access to funds (more than self-funding provides) to help expansion. Expansion could be in the form of hiring more staff, buying extra equipment, relocating to bigger premises and so forth.