It is never a good idea to put all your eggs in one basket. You should have a diverse range of financial sources so that your startup can have a better chance of taking off. Banks should not be your only source of money. Showing that you have several financial alternatives lets your lenders know that you are proactive as an entrepreneur.
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Here are some of the other financial sources that you can rely on:
Internal revenue service
Just in case you were thinking that the IRS gives away money, it does not. However, it does allow you to deduct expenses. If you pay a lot of taxes, you should assess whether you can use your profits to lower your tax bills or grow your businesses.
Asking your customer for advance payments is another source of low-cost money. This allows you to keep your business growing while building relationships with your customers. An advance also demonstrates a certain level of commitment from your customers, which is a good thing for your business in the end. Asking your customers for advance payments is a relatively straightforward and easy way to fund your business.
Family members and friends
If you are lucky enough to have friends and family members who are willing to support you financially, then you are in luck; these are the most lenient investors you can ask for. People that know you personally will not ask you to pledge your house. They might even sell their interest back to you for small returns.
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Banks provide short-term, mid-term, long-term funding, as well as financing asset needs, which include real estate, equipment, and working capital. This option is only possible for people who can make enough money to cover their interest payments and give back the principal. Banks usually want a guarantee of repayment by asking for secured interest on personal assets. Unlike most financing options, banks usually offer some flexibility meaning that you can repay your loan early and end your agreement.
The leasing of a fixed asset conserves money for working capital, which is usually harder to fund for startups. However, you should not put down too much money that you eventually spend a similar amount as you would have when buying the asset with a down payment. Although the cost of a lease is higher than that of bank financing, the cost of a down payment that you do not have to make is usually less excruciating than the dilution suffered after giving away equity.
You can also finance your startup by asking your suppliers for financing. When you choose this option, your financiers will not be in control of your growth, you will. You also need to be careful so that you do not end up enslaving yourself to a number of powerful suppliers in the process. This would not be good for your business because your suppliers will own you.
This is not a conventional method of financing a business. What if you want to start a non-profit organization? In that case, you can hold a fundraiser to get capital for your startup. Start by asking friends and family to get in touch with everyone they know to help you in raising the required funds. Moreover, you can search for top fundraisers for nonprofits online. Internet fundraising is quite new and has proven to be very helpful for some people. Before you dismiss it in favor of other financial sources, you should visit a few online fundraisers.