How To Finance a New Business or Startup
Coming up with great ideas for potential startups and getting excited about them is easy. It’s actually transforming those ideas into workable business plans that can be difficult. Perhaps the biggest challenge associated with getting a brand new plan for your next would-be business is finding financing, but developing a working understanding of the different stages involved can help take the guesswork out of the process.
The first stage involves that very first round of investments, the round that officially takes your brand new business from “good idea” to “company in the making”. Seed money can come from many different sources, but common possibilities include personal savings, angel investors, traditional loans, or even crowd funding. Funds raised at this stage are generally used to develop key products, gather a team, or research the going marketplace.
This is the second round of funding for many startups, but in some cases it may be the first. Generally speaking, those that invest in a business at this stage expect their investment to go toward expanding on an existing product line, launching marketing campaigns aimed at new demographics, and more or less taking every aspect of the business to the next level.
This phase of funding comes into play after the business in question has successfully grown roots. The products and services it sells have found a market. Everything’s on the up-and-up in every way, meaning it’s officially time to expand and kick operations up a notch or two. Possible uses for funds collected at this stage include targeting a global market, as opposed to simply a regional one, or adding new members to an already successful team. In cases where the business is verysuccessful, the owners may start thinking about acquiring other companies at this stage.
Loan options for startups can vary from situation to situation, but include basic 7A lending programs, microloan programs, and certified development company (CDC) programs. Basic 7As are good options for funding during the early stages of a business’s development, as are microloan programs. CDC programs, on the other hand, are better picks for businesses looking for second or third stage funding.
As is the case with any other important decision in life, evaluation of potential lending options for new or growing businesses should be done with care. Always shop around for the lowest rates and most generous repayment terms, as well as take care of your business’s credit from the beginning. It will really pay off in the long run.