How to Finance a Startup Business
When it comes to financing a startup business, many entrepreneurs do not have the resources to use traditional sources of capital. While 78% of new business owners had no other resources, many used personal savings or job income to fund their business. Depending on their business plan, they may need to sell their houses or cars to finance the business, rent an apartment above a restaurant, or take out a home equity loan. However, they must still make payments on this loan.
Venture capital
There are many different ways to finance a startup business, but one of the most efficient is to tap into venture capital funds. These types of funds are geared towards startup businesses that have an unpredictably high cash flow and have little brand recognition. Because of this, venture capital is best used by startups with a relatively low amount of history and minimal revenue.
However, this type of financing is not ideal for established businesses that need quick cash to survive or expand, as it is considered debt, not equity.
Obtaining venture capital can be a lengthy process. The process begins with an initial meeting with a VC principal, followed by more meetings, conversations, and presentations to the other VC partners. Then, the company needs to negotiate a term sheet, which involves numerous legal documents and continuing due diligence. However, the process is worth it when the startup can demonstrate its potential and can convince the venture capitalists to invest.
Business term loans
One of the best ways to finance a startup business is by taking out a business term loan. These loans, similar to student loans, let you pay back the loan amount in equal installments over a specified period of time. They are available from banks, credit unions, and online lenders, including private investors. …
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