How Hedge Funds Make Money By Shorting Shares

Funding Options for Your New Business

Photo Courtesy: Mike Petrucci/Unsplash

Starting a business can be an exciting time, but there's one big hurdle: finding ways to fund it and cover your startup costs. Luckily, you have several options, though each has its own advantages and disadvantages. Here are five of the most common ways to gain funding for a new business.

Get a Bank Loan

One of the first options that may come to mind is getting a loan through a bank or with assistance from the United States Small Business Administration. Securing a bank loan can be challenging during economic recessions, but it's still possible. There are even businesses out there that can help you secure a loan. The downside is that you typically do have to meet a number of strict qualifications, but it's always worth applying for, even if you're not sure you can get a traditional bank loan.

Use Business Credit Cards

It's likely that financial experts are keen to advise against this option because it's definitely one of the riskiest on the list. But some entrepreneurs fund their startups with business credit cards. You have to be extra careful because missing payments can grievously affect your credit score. You'll also find yourself deep in debt if you can't pay the money back or can only pay back the minimum each month as interest builds. But the advantage is that you can get started as soon as possible, and you don't have to rely on anyone else for help.

Ask Family and Friends for Help

That said, many people who want to start a new business often turn to friends and relatives for help, be it through gifts and donations or through loans. Perhaps you have a wealthy parent, aunt or uncle who may be willing to help you out. If you're asking for a loan, make sure you have a good plan in place first. Also, make sure your loved one knows the risks involved (for example, what happens if you become bankrupt and can't pay them back). While this is a common way people start a business, it can lead to some bad blood and ruined relationships, so keep that in mind. Treat this situation as a business deal and draw up a contract.

Find an Angel Investor

An angel investor is another option if you know someone who is wealthy and enjoys making helpful investments. And it's a good one because these people typically already know the risks involved and may provide some guidance. Sometimes, asking your friends and family for help can point you in the direction of such a person. Again, before you ask, you need to have a good business plan in place and show the potential angel investor that you know your industry. The Angel Capital Association (ACA) can connect you to many of the largest investor groups in America.

Make Some Sacrifices

Last but not least, you may just have to raise the money the old-fashioned way. "How do I get funding for my first business?" Take on a second job. Sell a prized possession. Take out a second mortgage or downsize. Get rid of one of your cars. If your business is that important to you, you may find places where you can make those sacrifices.