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How will you finance your small business?

One constant small business challenge is how will you finance your venture? With many funding options available it is important to choose the one which will benefit you and your business the most. Before you decide on which funding option to choose it is important to ask yourself the following questions:

  1. How much money do I need to start the business?
  2. How much money from my own savings am I willing to contribute?
  3. Do I have some of the assets I need to start the business?
  4. What is my credit rating?
  5. Do I have family, friends or colleagues who would willing to invest in my idea?
  6. What do you want to finance?

Once you have the answers to these questions you can choose the best funding option.

Personal savings

Here you look at the savings you have available and use those to start your business. The disadvantage of using your savings is that should your business not be successful and you could lose the money you have invested.

Credit card

Should you require a bit of money to tide you over before the cash flows in then a credit card can be advantageous. One item to consider is that the interest rate on a credit card is very high. Therefore, it is a good idea to pay off as much of the balance as possible every month so that you don’t leak money out in bank charges.

Bank loan

In South Africa, the banks are encouraged to support small businesses. Each bank has a small business loan which you can consider. Do not wait for a rejection from one of the banks. Apply to all of them to save time. You can always reject one of the loans if you get more than one.

Crowdfunding

Are you social media savvy? Do you have a large network of friends and family? Then crowdfunding could be the answer. With crowdfunding, you set a target amount which you want to achieve in a certain period. Then you promote the crowdfunding initiative on all social media platforms. If you manage to get your target amount in the stipulated period, then the crowdfunding platform will give you the funds for your project. If not, they will send the donations back to the investors.

Angel investors

This type of investor is an individual who wishes to fund seeding capital into a small business. The advantage of being financed by an angel investor is that they may also offer mentoring with their investment. One potential disadvantage is that the investor may require some shares in your business. Just be careful not to sell to many shares. If you sell someone 51% of your shares; they essentially own your business.

Incubators or accelerators

There are businesses which help successful entrepreneurs to grow. They give entrepreneurs access to various funding options as well as coaching them so that they can create a successful and sustainable business.

By going through these options, you will be able to find the best financing option for your business.

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