Do you dream of leaving your 9-to-5 job and taking charge of your business future? Do you have fantasies about being your own boss? There has never been a better time to start a business as a woman, and that’s why so many women from all walks of life are taking the plunge. One of the biggest concerns most people have about starting a business, money. It not only takes money to make money, there’s also the fact that once you quit your job you won’t have an income until your new venture starts making money. Figuring out the finances is one of the first important steps you’ll need to take toward being your own boss.
There are two basic ways to finance your dream: equity financing and debt financing. Essentially, debt financing is what most of us think about when we think about borrowing money to finance something, whether it’s a mortgage to buy a house or a loan to start a business. Typically, debt financing is about borrowing a certain amount of money under the agreement that you’ll pay back the loan in a specified time at a set interest rate. When it comes to business loans, you are on the hook for these funds whether your business succeeds or not. This includes loans from banks or other types of unsecured loans provided by direct lenders like Buddy Loans.
Equity financing is a little different. In this scenario, you approach potential investors and sell them a stake in your business in order to raise the capital you need. The investors understand that if the business doesn’t succeed, they risk losing their investment, but if the business succeeds, they will usually get a higher return on their investment.
Financing a Business
These are the most popular ways to finance a business, but there are other ways, too, many of which are becoming increasingly popular. Let’s look at a few:
Loans from friends and family (although many people steer clear away from this, as it can cause friction if things go sour)
Bootstrapping, the term used for using your own savings or other assets to finance your business
Grants and other government funds (popular because often they don’t charge interest, but the application process can be a headache)
“Angel investing,” a scenario in which an investor provides financing in exchange for a percentage of ownership of your company
Trading/bartering, whereby you trade services or goods with another party for mutual benefit
Finally, thanks to the massive popularity of social media, a new type of financing has become very popular for entrepreneurs: crowdfunding. Crowdfunding is essentially raising money online to fund your goal.
Whichever type of funding you choose, it’s important to be realistic. Thinking about the freedom that comes with owning your own business shouldn’t cloud your judgement about the realities of the situation. Owning a business is tough, and when you first start out there are going to be financial struggles, long days, and lots of stress. One way to alleviate some of those pressures is to be sure you have a financial cushion in place before you take the plunge. Be sure you have enough living expenses to live comfortably while you work to get your business off the ground. Remember: A business loan is a loan to start your business, not funds to live on while your business gets going!