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Funding your start-up business can be next to impossible without cash. Strict lending standards continue to challenge many start-ups. So what’s a fledgling business owner to do? Here are some funding ideas to help you get started.
Keep your day job
Still have a job? Keep it. Your current job can be a springboard to your own company. You can make a living during the day and work on your business at night. Just make sure your new venture doesn’t interfere with your day job and that you’re not in direct competition with your current employer. This will give you a steady stream of cash flow to depend on and possibly put toward your business.
Bootstrapping
If you’re lucky enough to already have a couple clients under your belt, you might consider bootstrapping. That’s using your company’s cash flow to fund itself rather than relying on external financing. Many companies have been built this way. Since bootstrapping requires ploughing business profits back into the company rather than taking them home, you’ll be amazed at the degree of focus you’ll have. Building your business this way requires keeping expenses low and establishing optimal target markets.
Borrow your business
Maybe you want to take over an existing business. If so, keep your eyes peeled for motivated sellers. Just as with homeowners, there are business owners out there itching to sell. Perhaps they want to retire. Or maybe they’re just sick of the daily grind of entrepreneurship. These kinds of owners may be willing to let you buy them out over time with a form of loan called seller financing.
Turn revenues into royalties
Gaining prominence among start-ups is so-called royalty financing. Through this type of loan, owners must repay creditors (typically private equity firms) a percentage of their business’ incremental turnover usually from 2 percent to 6 percent. While this financing isn’t cheap, you can retain ownership and a full equity stake in your company, which can be extremely appealing to entrepreneurs. And since payments are based on a percentage of turnover, if you have an off month, you aren’t forced to pay a fixed rate giving you greater flexibility to meet other bills as well.