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With history as our guide, 20 percent of small businesses will fail within their first year. One of the reasons these businesses fail is because owners don't understand business financing.

When you set out to finance your business, there are several different strategies that you can use.

1. Recurring Revenue Lending

Recurring revenue landing is sometimes also known as SaaS credit. Companies can use this financing that is based on their monthly recurring revenue. The credit amount changes based on the revenue created by your customers.

These loans are structured as a line of credit. You can borrow and pay it back whenever you need it, and companies have no payments to make if they haven’t borrowed anything.

This is great for businesses that have a good track record of retaining customers and having a steady, recurring service.

2. Use Savings

While this may not be the best solution, it can be a good way to start your business. This is also known as bootstrapping.

Starting a business from your own assets means that you won't have to go into debt immediately, and you won't have to worry about making monthly payments to a lender, especially if you don't have a significant cash flow.

However, this is also a risky type of financing. If your business doesn't work, then you're missing all that money you invested and can't get it back.

It can also make it harder to separate your personal and business finances as time goes by.

3. Equity Financing

Equity financing is a way to raise capital by selling shares. Companies do this to raise money in the short term or long term. They might need to just pay off bills or acquire funds to invest more in their company.

When they sell shares, they're selling ownership in their company in exchange for cash that they can use to grow their business.

Equity financing can come from many other sources as well. For example, an entrepreneur can have an investor, friends, family, or an initial public offering (IPO) where the public can buy shares.

An IPO turns a private company into a public company. Many popular businesses like Google and Facebook have used IPOs to generate money to grow their business. However, this type of financing is heavily regulated, so you need to strictly follow all rules and regulations.

4. Debt Financing

You can get debt financing when you raise money by selling a fixed-income product such as a corporate bond to potential investors. This is kind of the opposite of equity financing, which uses stocks to help you raise money.

Debt financing, unlike issuing stock, means you will have to pay back the notes on a regular basis. This is great for small companies that want to grow quickly.

5. Bank Loan

Most businesses will get a traditional bank loan for capital to grow their business. This is a good choice if you're someone who has a good credit history and a good credit score. You're more likely to get approved for this loan if you have those factors.

When you get a loan from a traditional lender, you'll have set monthly payments and a fixed term of the loan. Depending on the size of the loan, you may be asked to sign a personal guarantee. That means if the business fails to be able to repay the loan, you will be personally liable to make the payments. In addition, if there is a valuable asset involved, the lender will often require you to include the asset as part of the guarantee of repayment. This can prevent you from borrowing against that asset from other lenders. You'll want to keep track of the interest rate and any other terms and conditions that are in the fine print.

When you get one of these loans, be sure to make your payments on time. If you don't, you will ruin your credit, which can affect your ability to get future business or personal loans.

If you don't have a good credit score or no credit at all, you could still qualify for a loan that doesn't look just to you for guaranteeing repayment. To get a loan like this, you will need someone with a strong credit rating to be a cosigner with you.

The lender will take into account the cosigner's credit history, and if you can't repay the loan, the cosigner will be responsible for paying it back.

6. Crowdfunding

If you don't want to take out a bank loan, you might want to try crowdfunding. This is a great way to raise money from different individuals to grow your business.

There are many different platforms that will help you gather working capital from different people around the world. You'll create a proposal for your business, and if people are interested in helping you, they'll donate money.

In some cases, you may want to offer private equity or other perks to people willing to contribute to your business. For example, you could offer a reward instead of money for people investing in your business. You often see a small company that wants to produce an innovative product offer donors the opportunity to buy the product at a big discount.

You may also want to explore peer-to-peer lender platforms. This means that you'll repay the money to a private individual rather than a bank.

7. Venture Capital Financing

Business owners can get venture capital financing at any time in the founding and growth of their business, but it’s normally part of the early funding.

Venture capital usually comes from specialized investment firms that pool the money of accredited investors or from wealthy individuals who specialize in funding startups. This used to be a niche activity for only certain industries, but now many businesses can apply for venture capital. Applying is not simple, and you’ll typically give up a lot of equity in your business. On the other hand, these lenders are invested in making you a big, fast success. They are looking for the next Apple, Lyft, etc.

Learn More About How to Finance Your Business

These are only a few ways to finance your business, but there are many other strategies you can try. Some firms find that having a knowledgeable outside party look at their business with fresh eyes uncovers funding opportunities based on existing operations. We see it happen every day with our clients.

One thing you’ll need is current financial statements that show you know how to make a healthy profit.  If you need help with understanding your financials a fractional CFO is a good place to start. They can help you see what the numbers tell you about your sales and operations.

We know that becoming a small business owner can be stressful and overwhelming, but we're here to help you out.

If you need more advice or have any questions related to starting your business, get in touch and let’s talk about your dreams. Brian Tracy USA: 877.433.6225 Email Me feedback@focalpointcoaching.com

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