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6 Ways To Fund Your New Business - Investment - Nairaland

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6 Ways To Fund Your New Business by Nlearn: 11:33am On Dec 07, 2017
I’m often asked: what is the best way to finance a new business venture. This question is usually followed by "So, do you ever invest in new business ventures?"

The answers, respectively, are:
1. there is no "best" way to fund a new business; and
2. I do invest in new business ventures,

The truth is there are a variety of ways to finance a new business and which way is best for you depends totally on your product, your market, your financial requirements, your burn rate, and most importantly, your personal and financial situation.


So with that in mind, here are a few of the most common ways to finance a new business without hitting old Tim up for a loan. Keep in mind that all methods have pros and cons and some (or most) may not work for your specific situation.


No matter what financing method you choose thoroughly investigate the ups and downs and don’t jump in with both feet until you’re sure you’ll land on solid ground.


#1: Savings and Investments

The first source you should consider tapping is your savings and investments. I’m a huge fan of self-financing when it comes to business because it doesn’t make you responsible to others should the business fail.

The bad thing is that if things do go unplanned, it will be your money that goes down with the ship. If you’re not willing to risk your capital, you certainly shouldn’t be willing to risk anyone else’s.


#2: Friends and Family

After tapping their savings and investments, many entrepreneurs turn to friends and family for help. This works well for some, but here’s the creed I live by

NEVER borrow money from anyone you have to eat Thanksgiving dinner with. Nothing causes tension in a family like lending money that is never paid back. And notice I say "lending money" rather than investing money.

Venture capitalists invest money. Your relatives lend you money. They will expect it back someday even if they say they won’t. Remember, when a loved one invests in your business they are emotionally investing in you.

It would be tough to tell mom and dad that their favorite son lost their life savings because his business went down the drain.


#3: Credit Cards
I financed my second application known as Pass At Once CBT on credit cards, which was an incredibly stupid thing to do given the fact that my business could have failed and left me with thousands of Naira in credit debt that would have taken long for me to pay off.
It worked out in the end for me, but if you decide to finance your business on Credit keep in mind that you will be paying extremely high-interest rates on the money you’ve borrowed and unless you hit it big you will be paying for that money for many years to come.


#4: Mortgage The Farm
Bank loans are next to impossible to get if you don’t have collateral and a track record of business success, which is why many entrepreneurs use the equity in their homes to finance their business after being turned down for a bank loan.

I Read How Linda Ikeji was turned down for bank load by three banks during her humble beginning and how they came back begging her when she must have made business success

While this makes more sense than building a business on a deck of credit cards, the financial risks are no less abundant.

You must pay this money back whether your business succeeds or not, but it is a good source of low-interest money to get you started, and the interest may be tax deductible (check with your accountant to make sure).


#5: Angel Investors
An angel investor is typically a wealthy individual who invests in start-up ventures for a share of the ownership. Angel investors are usually the first formal investors in a business and provide the seed money to get the business up and running.

Some angel investors will write you a check and leave you alone to run your business while others consider their investment a license to "help you" manage and make decisions.

If you do accept angel money make sure the terms are clearly defined on both sides. Angel money always comes with strings.

Make sure you know whether those strings come in the form of a bow or a noose before you accept an angel’s check.


#6: Venture Capitalists
Venture capitalists are angel investors as pit bulls are to Chihuahuas. That’s not to say all VC is big, bad dogs, but they do have powerful jaws that can chew up your business and spit it out if things don’t go their way. VC money doesn’t come with strings; it comes with chains and locks and lots of legal documents. VC always have the upper hand in any deal they invest in. That’s just how it works, and that’s the price you pay to get access to VC money.

If your business gets to the level that VC money becomes a viable option, don’t jump at the first bone a VC dangles before your eyes. If one VC likes your idea, others will, too. Present to multiple VC and carefully consider each offer before you accept the check.

Just remember, no matter how you finance your business, use the money wisely. Should be used with care... you don't grow financially without understanding real investment. And Have a very clear plan of how the money will be used and how it will be paid back.

And remember this, the more you can shoestring the business, but more of the business you will own in the end.

Source https://nairalearn.com
Re: 6 Ways To Fund Your New Business by godmercy15(m): 10:07am On Dec 08, 2017
Many people have business ideas but they being incapacitated by start up capital, your posting is an eye opener to many persons in such situation.
Re: 6 Ways To Fund Your New Business by Nlearn: 2:56pm On Dec 08, 2017
Yes... Start-Up Capital is always an issue to some, while other work they ways out, some don't, Thanks for finding my article useful... Thanks
godmercy15:
Many people have business ideas but they being incapacitated by start up capital, your posting is an eye opener to many persons in such situation.

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