Let’s agree that we have all had an idea about starting our own business. But we have never been able to realize this idea. The reason is that we lacked proper funding to do so. As per the common definition, a business employing less than 500 people is considered a small business.
The above-mentioned definition may differ from industry to industry. Other factors that decide whether a business is a small business is its yearly earnings. Also, the funding requirement for the small business depends on the industry.
Today, the market is highly competitive and demanding. Thousands of great ideas are presented daily in hopes of securing proper funding. So your business idea must have a unique edge to it.
Do you have an exciting idea to start a small business? If yes, you may want to go through this article to help you with a few funding resources.
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What's in this guide?
How to Come Up With an Idea?
Even if you already have enough money, you still have to come up with an idea that is destined to succeed. Write down the things you like to do or things that are in demand.
Whether you want to start with something like a dry cleaning business or a carpet cleaning firm or you want to start with something like a car dealership or a grocery store, it can only become a reality if you have the cash to fund it.
Top 4 funding resources for small business
Here are 4 ways you can sources funds for your small business:
1. Savings
It is very tough to arrange funds for your small business. We suggest you do not hurry into it. Instead, list out all your options before making the decision. In our opinion, your savings are the safest source of funding to start a small business.
It may be due to the fact that you have a clear target in range. You want to start a business that you can fund from your savings. This makes it easy to decide which industry to step in. For example, you can start a cleaning or gardening service, daycare, catering, or home delivery business.
- Pros
You will work better when it’s your own money being used. Also, using your own money gives to complete control over your business.
- Cons
Beware, you can easily move towards bankruptcy if your business is not going well.
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2. Leasing
Some small businesses require different equipment to start. Equipment for dry cleaning, gardening, or coffee shop can be leased. Usually, what happens is that a bank or a firm buys the equipment and rents it out to you. At the end of the lease term, you can either extend it or buy the equipment.
Equipment leasing can be availed easily, even for people with minimum experience. Equipment can be leased for a term of 7 years. You just have to pay a down payment, which can vary from lender to lender.
- Pros
One of the biggest pros of leasing is that you do not have to spend a big amount initially. You get the latest available equipment. Also, you get some tech support along with the leased equipment.
- Cons
The overall cost of the leased equipment is too much. And you do not have any share in the ownership of the equipment over the years. Early termination of lease costs a fee to the small business.
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3. P2P Loans
P2P loans are also very easy to have. It is a platform that matches lenders with borrowers. Over the years, this source of funding has become popular. Many websites are already competing to attract a big chunk of this market.
- How to Apply for P2P Loans?
First, the lender sets up an account and deposits funds to the site. Every borrower has to set up his profile detailing his financial information. The platform decides the interest rate depending upon the risk category of the profile. The lender and the borrower can choose to interact as well.
P2P lenders are not banks or institutions. They are individual investors that provide funding for small businesses. A borrower submits a requirement for a loan, and an investor matches it.
- Pros
P2P loans can be availed easily. The process is quick and offers a low-interest rate. The rejection rate for P2P loans is less, which makes it a great choice for small businesses.
- Cons
The only problem it has is that you need to have a good credit score. Also, remember that this may have an effect on your credit score. So you must make your payments within due time.
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4. Traditional Loans
If nothing works, you may look towards traditional loans. These can be availed from banks or lending institutions. Some are backed by the SBA as well.
Many small businesses choose traditional loans to start. The reason is that it saves you from going from person to person to present your idea. You will need a strong credit, statement of cash flow, earnings, and loss details as well.
To make sure that your application is approved, you must have a great business idea. Bank loans are backed up by your personal assets. In case of non-payment, the bank can sell those assets to cover itself.
- Pros
Traditional bank loans offer a better interest rate than other lenders. The rate is fixed for the term of the loan. It can be used for various purposes.
- Cons
One of the biggest cons of traditional loans is that it requires a lot of paperwork. The wait time is also long as compared to other sources of funding.
Also Read: 10 Best Small Business Ideas To Start At Nigeria University
Conclusion
The funding resources discussed in this article are those commonly used. You can also reach out to your family and friends. In that case, the other person may demand some share in your business as well.
Remember that funding is a part of the idea, not the whole idea. Even if you have the funding, you still have to come up with a brilliant business plan. To road to setting up your small business is long and rough.
The ride may not be smooth at times. But patience and commitment is a must in a small business. Your business is in good hands if you have that along with a good plan.
