Around 4.3 million business applications were submitted in the United States in the year 2020 alone. To approximate, one in every ten people living in the United States aims towards starting a business. Four out of five of these applications were submitted by potential small business owners.
What is a small business? Small businesses are privately owned and operated corporations or a proprietorship that is run with fewer employees with less operating costs (and usually lesser annual revenues) than larger businesses.
These business owners are usually working out of their homes and their business is usually a ‘side hustle’ they maintain alongside their full-time or part-time employment. In most cases, the business owner is usually the sole employee of the business – they work for themselves.
Up Front Cash
It’s naive to believe that all it’ll take to successfully launch any business off the ground and make big is by having an innovative idea and putting in the hard work. While they’re both necessary; any business requires capital – money. An innovative idea and hard work are mutually exclusive of up front cash.
1. Self-Funding
The best way to secure capital for your business is by saving up for it. Most small businesses run alongside other jobs which makes it easier for potential business owners to start saving up before they can kick start their business.
Create a savings account dedicated specifically for your business the second you decide to start one. Add in money to this account monthly and aim towards a specific amount each month. Look for a high yield savings option that offers a higher interest rate than the average Do not indulge in this account. If anything, try living as frugal as possible till you meet your goal.
A study estimates that the average American spends upwards of $600 annually on coffee, takeout, and other related items. These numbers might seem small at the moment, but add up later on – better to let them add up in your savings account.
2. Angel Investors
An angel investor is someone who invests in your business and mentors you alongside. Angel investors often work in groups and you’ll be required to submit an application or present a pitch to them for them to consider your business.
They require a share in the business (equity) but have substantially less interest rates (if any at all).
3. Venture Capitalists
The main difference between an angel investor and a venture capitalist is in the risk associated with the latter. A venture capitalist will give you more money for the same amount of equity and would, in all probability, mentor you as well.
However, VCs almost always have a three to five-year ‘out’ plan. They pull out of the business after their initial investment plus more has been met.
4. Bank Loans
Obtaining a bank loan for a small business is a lot harder than it’s made out to be. Banks aren’t one for taking risks and a business is almost always a risk. To secure a loan from a bank you’ll need to create a solid foundation for your business and invest your capital. This is to show the bank that you’re dedicated to expanding your business.
5. Small Business (SBA) Loans
The SBA was created in 1953 and offers small business owners guarantees and capital against their loans, credit scores, and credit cards. Most banks follow SBA loan programs and offer incentives where the bank’s usual stream does not.
Conclusion
94% of all businesses close down within the first five years of inception. An overwhelming amount of these businesses are small businesses. Money is always an issue when you’re venturing into the capitalist world. This is why business owners are advised not to dive in headfirst. Instead, they should look at ways at securing capital before they think of anything else.
