5 Ways Entrepreneurs Can Finance Their Business Ideas

Entrepreneurship can be an exciting adventure, and it can be easier than you might think. Do you have a winning idea on which you want to establish a business? While you don’t need a business degree or years of experience to succeed, you will likely need financing to get your idea off the ground. Here are some tips to help you secure the funding you need to launch – or ease the burden of trying to finance – your small business.

1. Funding by friends and family

With a lack of strong credit history, it’s sometimes challenging for entrepreneurs to obtain traditional loans through banks or private lenders. In these cases, it’s not uncommon to reach out to friends and family – those who know and trust you already. This is a definite pro, but the ugly-side comes if something goes sour with repayment or terms and the potentially compromising situation that may develop for you.

2. Crowd-funding

An increasingly popular method to obtain financing is crowd-funding – a collective cooperation of people who network and pool their money and resources together, usually online, to support efforts initiated by other organizations. Crowd-funding gathers multiple, smaller investments as opposed to a single source of funding. Need more resource on crowd-funding? Get it here.

3. Peer-to-peer financing

Like crowd-funding, peer-to-peer (or P2P) lending allows you to make your business case to others with the hope that someone will make an investment. The biggest difference between the two approaches is that P2P lending typically focuses on one individual lending to another (versus the “crowd” of lenders). P2P sites allow you to determine how much you need to borrow, define the purpose of the loan and post your listing online. More resource on P2P is available here.

4. Personal savings

If you’re relying on your cash reserves, credit cards or savings to start a business, try to avoid some of the overinvestment traps that entrepreneurs fall into – whether it’s a swish office, computer systems or inventory overload. Focus instead on building a good product and a positive customer experience.

5. Bank financing

Most start-ups are initially funded by the entrepreneur and his family or founding team. But it is rare that the level of available funding from these sources is sufficient. Bank financing is not so easily available to start-ups unless fully collateralized by deposits from the entrepreneur or a sponsor. Even then, the bank will be reticent unless it has confidence in one or more of the principals.

Banks evaluate the safety of their money, focusing on the factors that ensure that they will get their money back when it is due. Therefore, it is rather helpful to have a founding team which includes credit-worthy individuals.

Source: http://thesafeenterprise.wordpress.com/2014/03/13/5-ways-entrepreneurs-can-finance-their-business-ideas/