Don’t Let Lack of Capital Hold Back Your Entrepreneurial Dreams!
Traditional funding sources for small businesses typically include small business loans, venture capital, angel investors and public and private grants. Getting help from government sources, such as the Small Business Administration, might seem challenging, but President Obama signed the Small Business Jobs Act in 2010, which offers multiple ways to get the funding you need according to an article posted at NASDAQ.com.
You should never let a lack of funding kill your business dreams because there are many sources of grants, funding, investor dollars and loans in today’s digitally connected marketplace. Searching for funds has never been easier, and you can set up automatic alerts, search for financing on your smartphone and use third-party services that allow you to enter your financial details once and use them in multiple applications. You can also use technology to prepare a professional and appealing business plan for your prospective company.
Evolving Sources of Capital Provide Signature Opportunities for Entrepreneurs
Sources of capital for starting a small business have traditionally discriminated against young people, minorities and women in past generations, but that has been changing dramatically in recent years. An article at USNews.com suggested that millennials–who often want to start their own businesses–are prevented from doing so by mountains of student debt. Millennials can reduce their student debt obligations by refinancing their loans at today’s lower interest rates, seeking repayment deferments and using ingenuity to finance business opportunities to supplement their incomes.
Women also hesitate to start their own businesses according to a Global Entrepreneurship Monitor report posted at Entrepreneur.com. In 60 out of 67 countries, male entrepreneurs outnumber female business owners. However, women are rapidly making advances in the business world–especially companies that focus on retail sales and those providing consumer-related services. Women–and often working moms and single parents–can find sources of funding for flexible businesses that allow them to work from home while raising their families.
Alternative Sources of Business Funding Are Readily Available Online
Business opportunities are often time-sensitive, and aspiring entrepreneurs can’t always wait for approvals on lengthy loan applications through traditional financing sources like banks, so alternative sources of capital can be valuable resources. An article posted at Businessnewsdaily.com recommends the following alternative sources of capital:
- Crowdfunding Financing Options
Crowdfunding is a financing option where you solicit small investment amounts from grassroots investors. Companies such as Kickstarter, Indiegogo and others allow entrepreneurs to post their business ideas and solicit small-dollar investments over the Internet to finance the businesses.
- Online Lending
Online lenders offer alternatives to financing through traditional financial institutions. Former U.S. Treasury Secretary Larry Summers said that he anticipates online lenders to service about 70 percent of all businesses within just a few years. These online lenders offer faster and easier loan approvals than traditional financiers.
- Venture Capital
If you’ve got a great idea and a solid business plan, you can seek the capital you need from venture capitalists. It’s possible to raise millions of dollars for your startup idea or business expansion plans.
- Factoring or Selling Your Invoices
If you need cash, you can sell your accounts receivable to factoring companies. There are various plans such as allowing the factoring company to handle collections and choosing recourse and nonrecourse factoring plans. Getting paid faster allows your business greater flexibility to pursue new projects and business opportunities or cover periods when cash flow is poor.
The Small Business Administration and other organizations offer science, business and research grants. Other organizations offer grants to women, minorities and people who plan to open businesses in depressed or economically challenged areas. There are public and private grants available that include a range of conditions and types of applicants.
- Angel Investors
Early investors are often willing to serve as “angel investors” in return for 20 percent to 25 percent of your company’s earnings. These investors often have lots of business experience, so they can offer valuable business insights and marketing advice.
- Peer-to-Peer Lending
P2P, or peer-to-peer, lending is a method by which borrowers and lenders can connect without using intermediaries like banks. Small investors can finance personal (and business) loans instead of keeping their money in banks or investing in risky stocks. These lenders are often more responsive to a great idea or emotional appeal than banks, so it’s easier to get approved than it is from traditional financing companies.
- Money Pools
Groups of family members, business associates, prospective customers or friends might be willing to contribute small amounts to a pool of capital that you can use to finance your business. These “pool” investors usually don’t have any legal authority to influence how you run your business, but they can offer advice, encouragement and support. Of course, there are always risks when borrowing from friends and family, so consider carefully before following this route to entrepreneurship.
Risks of Excessive Funding Liquidity
A report published at Economistsview.typepad.com warns of the risks of excessive liquidity. Most people worry about a lack of capital, but today’s opportunities for funding a business are so wide-ranging that entrepreneurs might take unacceptable risks. Even back in ancient times, Plato warned that “wealth is the parent of luxury and indolence.” Entrepreneurs–flushed with ready cash–are more susceptible to investing in risky ideas that aren’t sound investment opportunities. The article further quotes studies that show wealthier entrepreneurs borrow less money less wealthy ones.
It’s clear that savvy entrepreneurs borrow minimally based on sound business needs while their impulsive counterparts are likely to invest in any idea and borrow too much money. Technology-enabled lending encourages people to make hasty decisions instead of doing their due diligence to find workable ideas.
Liquidity risks stymie businesses at all stages of development. Before the financial crisis, many business planners failed to consider liquidity and cash flow when researching business opportunities. It’s important to remember that when you start a business, it might not be possible to quit without losing your investment or becoming stuck with a mountain of debt and no way to earn money to repay it.
Despite the risks, business ownership drives the national economies of all countries, and the United States has always led others in entrepreneurship. If you have a great idea and a sound business plan, you don’t have to let a shortage of capital prevent you from realizing your business vision. However, if your business concept isn’t fully researched and planned, you should never allow easy credit to guide your choice in starting a business.
You don’t have to be an expert in accounting and finance to leverage funding opportunities in today’s economy. Real estate moguls like Donald Trump are the exception to traditional business practices that require years of sweat equity. It’s hard-working entrepreneurs that drive the economy and ignite increases in the gross domestic product. You can find specialized funding opportunities based on your demographic profile, sex, race and other factors. Find out more about alternative lending and financing options for small businesses at the Personal Money Store.