Financing Options for a First Time Business Owner

09 May, 2016 / Comments: Comments Off on Financing Options for a First Time Business Owner / By

For first-time small business owners who have a lot of money in their savings account, the hardship of starting a business only lies with coming up with a good idea for one. However, the reality is that many new business owners are faced with the opposite problem—they have a great business idea, but no capital to fund it. Overcoming this financing hurdle is even trickier because first-time business owners are often turned away from a traditional business loan. However, all hope is not lost as you still have plenty of options in your arsenal. Here are a few financing methods that you should consider as a first-time business owner as they are much easier to secure than traditional loans.


Online Lending

In recent years, a new online form of lending has taken the world by storm. Such sites as Kabbage and OnDeck have replaced many traditional business loans for budding entrepreneurs. The advantage of using this financing method is speed, as the application takes less than an hour to fill out, and the decision on whether or not you’ll be approved will be made within a couple of days with the funds in your bank account the day after that. On the other hand, traditional business loans often take weeks or even months to complete.


Family and Friends

If you are close to a friend or family member that has some cash to spare, then this could be another potential financing option for your start-up. Borrowing from someone you’re close to comes with some advantages such as only having to pay a small interest rate, or even no interest rate at all. Additionally, you can circumvent the often-tedious hassle of a bank contract. If you do use this financing method, then it is essential that you maintain an open line of communication with your relative or friend to ensure that your relationship with them does not become damaged. When you approach your friend or relative make sure that you have a well thought out game plan to increase the chances of them agreeing to invest in your business.


Invoice Advances

If you want to avoid a loan altogether then you may want to consider an invoice advance to aid in your financing struggles. This works by a service fronting you advances on the invoices that have already been billed out. You then pay this back once the customer has paid the bill. This type of advance lets businesses close the gap between work that has been billed and work that has been paid. Using it can help your business grow and allow you to hire new employees by ensuring that you always have a steady cash flow.


Open a Side Business

To fund your new business, you may want to look into what’s called “double-dipping” as a way to fund your company. For example, if your business has a website and already has some decent traffic, you could consider putting some affiliate ads on as a secondary stream of income. Another example is if you own a restaurant, you may be able to sell the grease to an alternative energy company.


Angel Investors

If you need financing for your small business, then you can always look to angel investing. Angel investors have been helping small business owners get off their feet for years now. In fact, such mega-companies as Costco, Google, and Yahoo have used angel investing in their early days as a way to finance their business. You can expect the interest rate on this type of financing to be between 20 to 25 percent. The main advantage of using an angel investor is that you will have a much more laid-back repayment atmosphere and also will be handed a decision as to whether or not you were approved within a few days. Lastly, you will often be provided with an angel who is a business owner him or herself, which has the added advantage of giving you some strategic advice on growing your business.


William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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