Approximately 543,000 businesses are formed each month. Did you recently start a business? Congratulations!
The road to entrepreneurship will bring blessings and challenges. One of the first challenges that all business owners will have to overcome is financing their business.
In the beginning stages of your business, you won’t earn enough profit to cover your overhead expenses. This is why it’s essential to have a reliable financing plan set in place.
It’s best to look at the different business financing options and know which one works best for your business and your financial situation. If you’re wondering how to finance a business, here are different options.
Business Credit Cards
While many business owners may be looking at loans, it’s actually easier to get a business credit card as a startup than a loan (we will discuss loans later in this article).
But banks will take certain factors into consideration. Your personal credit is the biggest factor — those with excellent personal credit will have an easier time getting a business credit card than one with poor credit.
Credit cards are also beneficial because you can pay off your credit card and continue using it. Some credit cards offer perks, such as zero-interest for a specific amount of time and cashback.
Credit cards also offer a secure payment method, as opposed to using a business checking account. In addition, you’ll improve your business credit score.
The only downside of business credit cards is you can only receive a limited amount of credit.
Using your savings is the only zero-risk source of business financing.
You’re using cash available to you, with no fear of rising interest rates or your financial health being impacted. If your business becomes successful, you can put that same amount back into your savings account.
Be wary if you’re using retirement savings to fund your business. You’ll also still want to keep some money in your savings — you don’t know when you’ll need emergency money.
Don’t have enough saved yet? If you still earn money on the side, start saving now and use those funds toward your business.
Loans are one of the most common business financing options. A lender gives you a lump sum of money that you’ll payback.
Unfortunately, many startups have difficulty securing a loan. That’s because startups don’t earn enough revenue, making them very risky borrowers.
That’s why it’s recommended to wait and get a loan when you have a healthy cash flow.
However, there are exceptions. You’ll have better luck if you have an excellent personal credit score.
If you need a loan but aren’t qualifying for a business loan, you can use a personal loan for your business. Personal installment loans are great examples.
How to Finance a Business: Weigh Out These Different Options
Did you recently start a business?
There are different financing options to help secure business funds and cover overhead expenses. Now that you know how to finance a business, weigh out these different options and choose the best one.
Do you not know which startup costs you’ll need to cover? Here are some of the most common (and expensive) startup expenses.