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A Brief Introduction to Financing Options for Entrepreneurs

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Securing Finances As A New Business Person

If you are starting a new business, securing financing is often one of the most difficult tasks you will face. This is because banks require a great deal of collateral. If you don’t own a home, have poor credit or lack collateral, getting a traditional loan can be extremely difficult. While there’s no certain minimum credit score for startup business loans, most traditional lenders have an array they consider acceptable. If you don’t have any collateral and have a very low credit score, consider an unsecured loan instead.

How To Operate Start-up Business Loans

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Start-up business loans often fall into two categories: bank loans and non-bank loans. Non-bank loans are more commonly referred to as venture capital or private investors. When seeking start-up business loans, entrepreneurs often face stiff competition from venture capitalists, who have the resources to fund businesses. Often, venture capitalists will require entrepreneurs to have their business plan in hand before they can even be considered for a loan. For this reason, it is often advisable to write up a business plan in advance, using templates provided by a financial institution.

Incubators are another source of start-up financing.

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Similar to venture capitalists, incubators provide a safe venue in which entrepreneurs can test out their business ideas and have them evaluated by experts before applying for bank loans. Incubators differ from venture capitalists in that they do not provide start-up capital, but rather serve as placeholders for entrepreneurs that need to raise financing prior to going public. Incubators are particularly useful for early-stage companies as they can provide seed money and access to mentors without having to worry about putting up collateral.

The Concept Of Seed Capital 

This is the most basic form of venture capital, and is provided by wealthy individual investors. Seed capital is commonly used for growing businesses, but it is also a good option for entrepreneurs looking for small amounts of capital for testing and developmental needs. Seed capital can also be obtained through banks or angel networks.

Small Business Loans – What Are They

A small business loan is usually given by banks or other lending institutions to entrepreneurs in order to help them achieve their business goals. The interest rates offered are usually very low, making them affordable for many entrepreneurs. The main benefit to applying for a small business loan is that the venture capitalist will receive a stake of the company’s profits. Because there are so many entrepreneurs interested in funding, lenders tend to be extremely picky about who they extend credit to.

Private Funding Is Another Option

A great many entrepreneurs turn to private funding sources instead of approaching existing banks. There are many private finance sources available, and they range from family and friends to investors. These sources of start-up capital are great because they give entrepreneurs an opportunity to get seed money without having to put up their personal assets. The downside to private financing sources is that they may take too long to secure and they can be difficult to come by. If you are interested in using private funds, it is critical that you approach a source with a good track record and lots of experience lending to new business start-ups.

Seed Capital Given BY Angel Investors 

Seed capital is given by angel investors to entrepreneurs in exchange for shares in the business. In exchange for equity investment, they receive a portion of the business when it is sold. This type of financing can be a great way for an aspiring entrepreneur to test the market waters before turning to more traditional sources of capital like loans or equity. It is important that entrepreneurs develop a thorough business plan with a well-written business plan.

Entrepreneurial Lending Lenders 

Many private organizations and finance companies offer entrepreneurial capital to entrepreneurs in return for shares in the business. These companies typically have financing programs in place for smaller businesses, so it is beneficial to look into these options first before turning to angel investors or other forms of private capital.

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