You might believe that brilliant business idea of yours proves that you’re a genius, but guess what—ideas are a dime a dozen. Even your bovine colleague who grunts at you whenever you try to communicate something important to him or your nosey auntie who’s the reason you hate Chinese New Year have probably come up with a few legitimate business ideas of their own.
The reason why there are so few successful entrepreneurs around is simply because bringing ideas to fruition is difficult. The vast majority of people do not act on their great ideas. The few who do are often forced to work themselves to the bone, or contend with a lack of funds.
While hotshot startup founders go around seeking venture capital, what happens if you’re just looking to start a more traditional business and need to find a bit of money to get your enterprise off the ground? Here are three ways to secure the cash to make your dreams a reality.
Take out a bank loan
Some people plough their personal savings into their businesses when they’re first starting out, but that’s not always viable. Not everybody wants to wait ten years till they can finally start their business.
If you’re prepared to work hard to make your business a success, the quickest way to get the money you need is to take out a bank loan. Now, you’re not going to be applying for the same kinds of loans as established businesses. These businesses already have a good track record, and many of them might own property they can use as collateral for the loans. This means banks are more likely to want to lend them cash.
As a newbie, you should be looking at loans like SPRING Singapore’s SME Working Capital Loan—yet another product of the government’s attempts to encourage entrepreneurship. These loans are designed for SMEs needing small unsecured loans of no more than $300,000.
It is usually quite risky for banks to lend under such circumstances, since newbie entrepreneurs have a higher risk of defaulting than established companies. SPRING Singapore takes on some of this risk on behalf of banks so they are better able to lend to beginning businesses.
We’ll be talking about how businesses use working capital from banks in a separate article, so follow us on Facebook to stay tuned.
So you’ve got a catchy little idea that other people think is great. But you don’t want to have to spend too much of your own money to bring your ideas to life.
If you can sell your idea well, you might want to consider turning to crowdfunding. Basically, you’ll be soliciting for money from the public, either in the form of donations or pre-purchases.
This is a great idea for projects that are on the creative side, or new products with a cool factor. Invest a bit of time and effort into creating a great pitch on your chosen site and you might see the money come rolling in.
Get money from friends or family under a written contract
Now, before you argue that your friends and family already run the other way when the word “money” comes out of your mouth, note that drawing up a contract to be signed by both borrower and lender is very different from simply asking to borrow some cash because you “forgot” your wallet.
When you’re formally borrowing money from someone and drawing up a contract, bear in mind that whoever’s lending you the cash may want to strictly define repayment terms—you’ll have to discuss when you must pay up and how much you pay with each instalment.
There’s also the issue of interest. Unless your lender is willing to let you have the cash for an interest-free period, you’ll want to decide how much interest should be paid bearing in mind inflation and banks’ lending rates. All this should go into the contract so you don’t end up gouging each other’s eyes out in a disagreement later on.
Of course, the fact that you’ve got things down in black and white also means the lender can very easily take legal action against you if you don’t pay up. So just because it’s your primary school friend who’s lending you the cash doesn’t mean you can take liberties with their generosity.
Alternatively, you can get friends and family to invest in your venture in exchange for a share of the business. While this is a little more complicated than simply borrowing the money and also means that you’ll have to share your profits with others, it also means less risk to you if your business bombs.
Have you ever started a business? Tell us how you raised the money to do so in the comments!