This is a guest post was written by Damien Justus. He is a freelance writer with a passion for business and technology. He writes primarily about technology trends in business, and anything else related.
After you’ve had your business idea and ironed out a solid business plan, you need to figure out how you’re going to fund your company. The funding method you choose can have significant effects on both your own financial future and that of your company, so it’s important to think it through and find the best option for your situation.
An angel investor invests a certain amount in your company and gets an equity ownership interest in return. While the investment amount can vary depending on your company and the angel investor, a standard amount ranges from $25,000 to $100,000.
Several successful companies got their start through angel investors, including Uber and WhatsApp. Angel investors are looking for companies that they believe have potential, so a major factor in whether you can secure funding this way is the quality of your business plan, along with your passion for the idea and its viability.
The best thing about getting your funding through an angel investor is that you don’t need to put in any of your own money, so there’s less risk involved. It comes at a price, though, as you’ll be giving away a piece of your company.
Business Credit Cards
If you have a good credit score, a business credit card is an excellent way to fund your business. You apply for a card, and if the card issuer approves you, you’ll have a revolving line of credit that you can use for all your business expenses up to your limit.
One of the perks of business credit cards is their convenience, particularly when it comes to the application process. Loans, especially business loans, can be difficult to get (many banks won’t even issue you a business loan if you haven’t been in business and earning a profit for two years). With business credit cards, as long as you have a steady income and a high enough credit score, you should have no problem getting approved.
Business credit cards also allow you to earn a return on the money you spend through reward points or cash back offers. Not only will you earn points or cashback on every dollar you spend, but most cards also have introductory offers, such as $300 cash back for spending $3,000 in the first 3 months of opening a Chase Ink Business Cash Credit Card. If you want to avoid paying interest, there are business credit cards with 0% APR for the first year.
Lending instead of going to a bank for a business loan, you could try peer-to-peer lending. On these sites, you post an ad stating the amount that you want to borrow and how you intend to use the money. The site also includes your credit score with your ad. People who want to make money on interest look through the ads and can choose to lend you your desired amount.
Peer loans typically have moderate interest rates, with the national average coming in at 13%. If your credit is high enough, you may be able to score a loan at a 7% interest rate. Terms are either of three or five years in duration, and you repay the loan on a monthly basis.
These type of loans strike a balance between affordable interest rates and high potential loan amounts. Personal loans range from $1,000 to $35,000, while small business loans range from $15,000 to $100,000. You’ll have the best chance at obtaining a peer loan at a low-interest rate if you have a high credit score and you can impress potential lenders with your ad.
There are plenty of ways for you to fund your business, it’s all just a matter of choosing the one that fits your needs. An angel investor is great if you can find one and don’t mind giving up some of your company, while business credit cards and peer loans are both fairly affordable options if you want to keep full control of your company.