You came up with a novel business idea which you know could make it big. All you need now is additional capitalization for it to really take off. The question, however, is always this- should you seek loans from financial institutions or should you be asking from friends instead? Most of the time, this is the dilemma with business startups. Seeking loans from either financial institutions or friends seem like a bad move. Why? It is like building your business foundations on loans.Obviously, when those loans mature, you need to pay it in full otherwise you can go into default. You might find yourself declaring bankruptcy in the middle of your business operations. So what do you do?
How do loans help your business?
There’s an old adage that says you need money to make money. That principle still holds true to this day. For instance, you thought of a good business idea that you know would really takeoff. The problem is that the business needs certain tools and equipment for it to start. Say the business is a pastry shop. You would need a special oven,preparation table, stainless steel shelves, moulds, baking tins, and other tools and equipment. If you have money to buy these things, then there would be no problem. However, if all you have is an idea and you have no financial means to jumpstart it, then you might want to consider taking out a loan. While it is true that it might not be a good idea to start a business on loans, you have no recourse under the circumstances.
What to consider when taking out loans?
The first thing you want to consider when seeking business loans is, of course, the interest they have on the principal. You do not want a loan that entails huge principal, do you?Check the interest rates that financial institutions offer on business loans.Compare them and erase those that have high interest rates. Check on their hidden fees and charges too. There are some financial institutions offering low-interest rates and yet their hidden fees and charges run in staggering amounts. Make sure that the financial institutions have low-interest rates and no hidden charges or fees whether monthly or upon renewal. Next is the period of a loan. Many startups begin to break even only after six months or so.Obviously, you would need a loan term that is twice or thrice as long. This is to allow you to assemble enough finances to pay your loan.
Borrowing from a friend?
Another option is to borrow from a friend or group of friends. This can provide you with lots of advantages,like some of those friends might lend you cash without interest. Some of them might even tell you to pay them when you are able to do so. While this is all well and good, it does have a few disadvantages. Your friend might suddenly run out of money and request you to return the money he lent you. Another disadvantage is that unless your friends have oodles of cash stashed away somewhere, then you can assume what they can lend you is limited up to a certain point. There are many other disadvantages to this type of financial source which is why only a few people consider this option.
Are there any other options?
Fortunately, there is a third option available for you and it is called crowdfunding. What is crowdfunding anyway and how will it help your startup? Crowdfunding is a means to raise money by requesting a huge number of people each for a small amount which is then pooled together. Using the Internet medium of communication between the proponent and would-be funders, it opens opportunities for both parties to explore. Usually, proponents will establish a profile of their business projection a crowdfunding page. They can then spread the word about their project on various online mediums like the social media.
Is crowdfunding better for your business?
To know if crowdfunding is the better option for your business, you need to look at its benefits. For one, it opens the opportunity to pitch your business idea to hundreds of thousands,even millions, of people. Convince a small percentage of that number and it is possible your target capitalization will be reached. Since crowd funders become your investors, you no longer have to worry about hidden charges or fees.Furthermore, your investors would want a return on their investment, which is why they also want to ensure your business succeeds. Along with this line, you can expect them to help spread the word about your products and perhaps even build networks of supporters around your business. Crowdfunding platforms can also help in terms of increasing organic visits to your website. By integrating digital marketing and social media into your platform, crowdfunding sites can help direct traffic to your business website.These are only some of the benefits that the crowdfunding option offers you. As to whether it is the better option, only you can judge. Try to see which can work best for you and your business. If you are having second thoughts, you can always go back and carefully scrutinize every detail. Anyway, it is normal for individuals to have second thoughts,particularly on things they do not understand yet. Nevertheless, it does not give them a reason to dismiss outright the crowdfunding option. For all you know, crowdfunding may be the very thing you need to put your business in abetter position.