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A small business blog featuring tips to help entrepreneurs succeed in the small business world. Topics include family business, human resources, marketing, money, networking, operations, ownership, startup, taxes and technology.
Funding Options for Small Business
When I started my photography business this year, I vowed that I would not go into debt to make it happen. Things are still slow as I build my portfolio and get the word out, which means there are times when I have no money coming in at all. And that’s fine, it just means that I’m not making any purchases to further things along either.
I do invest my own money in the business. In fact, that’s exactly how I got the business started in the first place, by saving up for it. And that’s how I take it to the next level with advertising, etc. I save up for a particular piece of equipment or ad.
Investing your own money in your business is the most cost effective way to get things moving, especially in the beginning. Additionally, as your business grows and has more revenue coming in, you can invest your personal income as a loan to the business, with an interest rate and all, where the business pays you back for your investment.
Another option is finding outside investors. But you must realize that most of them will only invest in the purchase of assets, so that they see some sort of return on their investment. Most (unless it’s a family member or friend who truly believes in your business venture) will not invest in your business expenses because there is little to show for it in the interim.
Keep in mind that this is also the case with third party lenders (banks, finance companies, etc). Business expenses typically have no asset to show as collateral for the repayment of the loan. All you would be doing is increasing your debt, but not necessarily increasing your revenue. Now, if you were to go to a bank to get a loan to purchase a large piece of equipment, and could show that it would make your business run more efficiently and increase your production, which will in turn increase your profits, then that’s another thing entirely.
And, as far as credit cards go, it is recommended that you don’t use them to get your business off the ground. It’s better to use them once things are up and running and consistent revenue is being seen. It’s also important that, because credit cards typically have a higher interest rate than any bank loan will have, you do your best to pay the balance of the card off every month. More or less, a credit card needs to be a means for paying business expenses when you are waiting on payment from a client and know it will be coming in.
Just weigh the costs and risks of your options. If there is a possibility that you will not be able to pay back a loan or a credit card, then it’s probably not the best option for you at this point in your business. Many people get into trouble in this area because they want their business to be successful right now and will do what they can to make that happen. Just be patient. All good things take time.
• Entrepreneur.com: When to Use Credit Cards
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