For a natural entrepreneur, nothing beats coming up with a company concept that you can turn into a reality New Jersey ConsolidationNow. As with full-fledged operations, company concepts need funding to grow. Using that momentum, find out how to finance a company concept.
This is easier said. Where can you get finance for a company concept without a financial history? A business loan from your bank is likely to be denied. If your company plan requires capital, you can explore non-bank choices.
Your Business Idea Funding
Some of these loans are simpler than others. Some need more effort and forethought. Some may not give the finance your future firm requires. Ultimately, the first finance option is totally up to you.
But you need data to make that conclusion. Here are some of the most accessible and systematic methods to finance a company concept.
Debt-based vs. no-debt business funding
Getting capital for a company concept falls into debt-based financing and no-debt financing.
When you think of a small company loan, you typically think of debt-based financing: It occurs when a company obtains money with the promise of returning it plus interest to the lender (hence, the creation of debt). Every time a bank or an internet lender extends a loan, they are taking a risk. After all, debt-based loans need the borrower (or company) to be financially stable to repay the obligation.
Most lenders want many years of financial history from businesses to feel comfortable granting debt-based loans. A lengthy credit history, healthy cash flow, and high personal and corporate credit ratings are some of the fundamental business loan conditions.
But, of course, business concepts lack the financial backing that lenders want.
So, for new enterprises, zero-debt funding is probably the first option—or one you might investigate. Instead of creating debt, businesses might seek funding from family and friends, the broader public, their assets, or individual investors wanting a part of its revenues.
Nonetheless, a loan may help finance a company concept. Startup loans will not look precisely like typical term loans since they will not have the same application conditions. That makes them more accessible to new firms. We’ll go through this more.
How to receive no-debt capital for a business concept
Zero-debt financing refers to financing options that do not require a firm to owe money to a lender. These techniques also need business loan approval, which is excellent for company concepts (or not-yet businesses). Here are some ideas:
1. Angel Investors
Equity financing gives investors own shares in your company. Angel and venture capital investors often provide capital for businesses. They prefer to concentrate on lesser quantities of money.
Angel investors live up to their beautiful moniker. Many rich people, already successful company entrepreneurs, contribute funds in advance to aid start-ups. Angels may also give guidance and experience to budding company owners.
But, just like any other kind of funding, you’ll need to demonstrate your company plan’s viability, your product or service’s marketability, and your financial and commercial expertise.
So you’ll need a working company plan before addressing possible angel investors (more on that later). But you may need to gather more evidence to convince investors of your company’s potential.
For Aaron White, CEO of Script:
“I was an IT Director at a school when I started my firm. Luckily, I could use my school’s resources to test my idea and pivot with my cofounder. After a year of product development, we had enough data to approach local Tampa Bay angels. We met angels who helped us expand thanks to referrals from groups like the Tampa Bay Wave, our local non-profit incubator.
Entrepreneurship incubators and accelerators may help you locate angel investors. However, your future angels may already be in your network.
Tom Gatzen, the creator of Ideal Flatmate in the UK, says:
“We got our start-up money from angel investors. We contacted friends, family, and anybody else we believed may be interested in our proposal. As a consequence, we had over 20 investors in our seed round.”
One benefit of angel investors is that they don’t vanish after the seed round. Angels will continue to invest in your firm as long as you use their first capital sensibly and demonstrate actual development. Ultimately, as shareholders, they want to see your company prosper.
With that money, we built a rudimentary version of our site to show potential investors that there was significant demand for our concept. We used this data to construct financial estimates and a business strategy for the next three to five years. We recently finished our second round of fundraising, practically all of it from repeat investors.”
Crowdfunding is becoming an increasingly popular way for entrepreneurs (or anybody else) to raise at least a part of their starting money. Donors contribute because they believe in your idea. Also, raising funds on a crowdfunding platform may reach thousands of individuals, making it a built-in marketing strategy.
3. Friends and Family
If you’re serious about converting your concept into a working company, you’ll likely ask your friends and family for help. So, presuming they want you to succeed, they’ll be happy to provide you with a financial benefit.
But, as usual, exercise with care when blending personal and professional lives. Before asking for loans or equity from family or friends, be sure your company strategy is solid.
To genuinely safeguard everyone involved (and minimize rifts), put your agreement on paper, with or without an attorney.
4. Self Finance
While looking at various zero-debt options, you should start preparing for self-funding your company.
Of course, self-funding your firm requires a lot of confidence. But if you want to raise thousands, if not millions, more from angels or venture capitalists, you must demonstrate that you have “skin in the game.” If you don’t trust your company enough to risk your own money, then a stranger won’t.
You may self-fund your company by withdrawing cash from your retirement account, borrowing against your assets, or taking out a home equity loan. Savers may be able to donate their funds to their company initiative simply.
Deals Scoop owner Stacy Caprio says:
“I started my company with my own funds from my 9-to-5 employment. Not having to give up control of my company to VCs or ask for money from friends and family was liberating.”
Personal capital might sometimes emerge from unexpected sources. FAIRY HOMES AND GARDENS owner Ronna Moore got her money from an unexpected source: Her store:
“My ecommerce company was intended to be a complement to my brick-and-mortar firm. With time, I restructured my company model and utilized physical store sales to support my ecommerce business. This was the simplest method to guarantee I had income and could save money. Because of this financing approach, I’ve officially gone ecommerce.”
To borrow against your retirement savings, give up your new automobile, or even take money from your existing company. But overcoming that anxiety might help you validate your company concept.
Funding a company concept with no debt
Which zero-debt financing option is right for you? No-More CEO Anders Thomsen got investment from three sources. Any aspiring entrepreneur should carefully examine each one’s benefits and drawbacks. Thomsen:
“Friends and family are excellent sources of startup finance. It’s simple, and your friends and family certainly want to help you succeed. If your plan fails, you may lose your loved ones’ hard-earned money and be forced to deal with the repercussions.
This is an excellent fundraising alternative. You don’t have to give up equity or worry about loans. But getting the money you need might be challenging.
A considerable quantity of financing from angel investors may help you build your firm swiftly. Angels also assist young small company entrepreneurs in avoiding typical blunders. Downsides include giving up stock and potentially some decision-making power.”
Conventional lenders want to see profit & loss records, company bank account statements, and other verifiable proof of your firm’s prosperity.
Most importantly, they will need to be persuaded of your firm’s viability and commitment as a small business owner.
“Prepare a strong presentation that addresses your investors’ questions,” Thomsen advises. He advises you to include the following in your pitch:
- Find a market gap or a customer pain issue.
- Describe your company’s solution to the problem.
- Examine the existing market, your target demographic, and your company’s fit.
- Identify your competition and how your company will stand apart.
- Make financial estimates.
That’s a lot to plan. The information in your business plan should have been finished if you are serious about your company concept.
Your business plan outlines your strategy for creating and expanding your company over the following three to five years. And lenders won’t support your enterprise unless they know precisely what they’re getting into (with their money).
How to borrow money for a business concept
As Thomsen points out, zero-debt financing has several drawbacks. So, you may want to check into a small business loan to support your company idea—either for the reasons stated above or to complement your cash.
New company debt choices are limited, but they exist! You merely need to uncover business financing choices for companies with little (or no) credit history. Here are your top three options:
1. Business personal loan
Startups struggle to get business financing from conventional banks or internet lenders. After all, lenders take a considerable risk when providing company loans, which may run into millions of dollars for the most qualified applicants.
So lenders need to be sure the borrower can pay back the significant sums. But if you’re new, you can’t prove your business’s profitability or dependability. Thus, a personal loan for business may be an option.
Unlike company loans, which must be utilized for the firm, personal loans may be used for almost any purpose. So does your startup. Your lender will solely look at your finances and credit history because you are liable for the loan, not your company. Your lender will solely look at your finances and credit history.
But personal accountability has its drawbacks. If you fail on a personal loan, your assets are at stake. Therefore you must be ready to face that risk. In general, mixing personal and company finances may be problematic. If your private money is mixed up with your business’s, you may be personally responsible for a lawsuit. Incorporating personal and corporate finances makes tax preparation complex.
Aside from the size difference, personal loans might have high closing expenses. So, weigh the benefits and drawbacks before taking out a personal loan for the company.
2. Equipment loans
Many entrepreneurs need equipment (trucks, ovens, computers, etc.) to make their company ideas work. But such equipment is costly and essential to a specific small firm.
That’s where equipment loans come in. Equipment loans are a good option for new firms since they are simpler to qualify for than typical term loans.
Lenders are constantly striving to reduce risk, as you know. They only want to deal with debtors they know will pay back their loans. But, like equipment finance, collateralized loans give a built-in safety net.
An equipment loan utilizes the equipment as collateral, which the lender may seize if the borrower defaults. That reduces the lender’s risk, allowing them to be more lenient with the borrowers they trust. In truth, equipment lenders are just as worried about a borrower’s personal and corporate creditworthiness as the equipment’s value.
Be aware that borrowers with more substantial credit will get better terms (lower interest rates) on equipment loans. While an equipment loan may make it simpler to finance your company concept, maintaining a solid credit score is still in your best interest.
3. Business Credit Cards
The simplest way to finance a company concept with debt is to apply for a business credit card. Using a business credit card is the simplest method to pay daily bills, keep personal, and company funds separate, and get bonuses and incentives that boost productivity.
Even new enterprises may get a business credit card. Card issuers will instead assess personal financial information submitted on the business credit card application with low company credit history. Card issuers just need to know that you have enough money to pay your payments each month, whether from your company or another work.
Like personal credit cards, there are many corporate credit cards available. These cards appeal to various credit scores, company demands, and personal preferences. But it’s difficult to gauge your company’s needs and habits when you’re just starting.
Every company is different, but they require cash. Startups need flexible finance to create their enterprises. So a cashback business credit card makes sense. You receive all the convenience and flexibility of a credit card, plus excess cash to spend.
How to get a business concept funded
When contemplating financing a company concept, your first thinking maybe your local bank. While you may believe your bank provides fantastic lending options, you may find it challenging to meet the conditions (and tiny interest rate).
Try zero-debt sources of funding like these:
- Angel or VC investors provide equity finance (if you can snag them).
- Family and friend loan
Small company grants, accelerator programs, and business incubators are all choices for zero-debt funding.
Consider debt-based finance, such as:
- Business cards
- Equipment loans.
- Invoice credit.
These three debt-based funding options are simpler to qualify for than standard term loans for startup enterprises.
Ultimately, like the small company founders we talked to, you’ll likely combine these approaches to finance your business concept.
Always explore your finance choices and target those that are genuinely feasible for your company concept today. And don’t rush into finance before the company concept is ready—a thorough business plan can help you get the best and most significant investment.