Plus, crowdfunding platforms generally take a cut of the money you raise. And repaying funders with "rewards" might be a lighter lift than repaying a loan or taking on investors.Ĭons: Unless your campaign goes viral, you might have difficulty raising as much money as you need this way. Pros: Launching a crowdfunding campaign can be easier to set up than many other funding options. Depending on the crowdfunding platform you use, the funds you receive might be in exchange for some kind of reward (like a "thank you" on your website or a sneak peek of your product), might be structured as a loan (in the case of peer-to-peer lending), or might even be equity investments in your company. You can then receive funds from friends and family-but also strangers-who come across your crowdfunding campaign online. How it works: You write up a description of your business, your funding goals, and what you plan to use the money for, and post it on a crowdfunding platform (see a list of some of the major platforms). While it may feel like an awkward step, think of it as an expression of your mutual respect: your respect for their financial resources, and their respect for the legitimacy of your business. Key tip: Even if you don't work with an attorney, write up a formal agreement that spells out all parties' rights and obligations, and have it notarized. And if the business fails, you might disagree over what sort of repayment they're owed. If your business makes it big, your friends and family might regret not receiving equity (or you might regret that you gave it to them). Pros: With (typically) no lengthy applications or credit checks involved, this can be a simple and quick way of raising funds.Ĭons: Even if all parties go into the arrangement with best intentions, it's possible that feelings could change down the road. If so, you'll need to agree on whether the money is really a gift, a loan, or an equity investment in your business, plus agree on terms and draw up paperwork. How it works: Perhaps your best friend from college (or the “bank of mom and dad") believes in your idea and wants to give you a boost. Key tip: If you're considering this route, look into whether you might qualify for one of the SBA's loan programs and apply with SBA lenders before you consider a non-SBA-guaranteed loan. They may also want to evaluate your personal finances, in addition to your business finances. Prospective lenders may scrutinize your business plan and your company's financial statements, and may want to see that your company has already established a credit history. Plus, taking out a loan-rather than taking on equity investors-means you get to own more of your business's potential success.Ĭons: These loans can be difficult to obtain, and borrowers typically must pass a rigorous application process. Pros: Loans backed by the US Small Business Administration (aka "SBA loans") can come with highly competitive interest rates. (Or if you borrow with a small business line of credit, you'll instead have access to a revolving line of credit, similar to a credit card.) If your application is approved, you typically receive a lump sum of money that you'll have to repay, with interest, according to a certain time frame. How it works: You apply to borrow money from a lender, like a bank.
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