Every business requires a certain amount of money to get a business off the ground. Not all businesses require an inordinate amount of money, and therefore, your savings might be enough to start the ball rolling.

For instance, if you are looking to start an ecommerce business, you do not need a huge capital to invest. In fact, you may need a large amount of money as an established company, too. Maybe you want to introduce a new product line, or maybe you want to open a new branch. However, if you are in need of a large amount of money for your start-up, it might be slightly difficult to arrange funds.

There are various methods to arrange funds for your start-up, but you will need a business plan. Whether you borrow money from a bank or a direct lender, you should have a solid business plan that explicitly explains how you will employ money and how likely you will generate profits to prove your repaying capacity.

Most of the start-ups struggle to qualify for a business loan because their business plan does not sound constructive. If a lender finds that your business does not have the potential to generate enough money to repay the debt, they will never sign off on your loan.

Ways to arrange funds for your start-up

Here are the ways to arrange money for your start-up:

·         Bank loans

If your credit history is good, banks should be an ideal choice in order to borrow money. They charge competitive interest rates as compared to direct lenders. However, it is still not so easy to get qualified for a business loan from a bank because of their strict approval criteria. Just having a stellar credit report is not enough to improve your chances of being accepted. Business loans are quite expensive than personal loans, and they also tie you to long repayment plans.

In addition to a perfect credit score, banks would like to see your business profitability. If they suspect that your business cannot generate enough profits, they will likely refuse you a business loan. You should pay attention to your business plan. Make sure that it consists of all the details that your bank needs to make a lending decision. It must reveal why you need money, how you will expand your business, how your business will benefit from funding, how much profit you will be able to generate, and above all, an alternative repayment plan that helps your business settle dues.

When it comes to taking out a business loan, relationships with your banks play a crucial role. If you have been on good terms with your bank, you will likely be able to be approved without hassle. Your bank could also offer competitive interest rates if you had borrowed money in the past and paid off your dues on time. However, in spite of that, you should have a good credit report.

·         Investors

Sometimes, the business idea is unique and requires a large amount of money. A new business idea involves greater risks, and banks often hesitate to lend money when they see your business fail to get off the ground despite having an impressive credit history. Banks would never be able to furnish you with an inordinate amount of money. Here comes the role of investors. You can borrow money from venture capitalists and angel investors. The difference between venture capitalists and angel investors is that the latter invests their own money. Things may seem easier, but they are not.

Raising funds from investors requires loads of formalities. First of all, you will have to pitch them for a business. You will be discussing your business plan. If they find that your business has the potential to earn profits, they will likely express their interest in investing in your business, but it is worth noting that they do not charge interest. It means that they are investing money in your business in exchange for a share in profits. The money invested by them is called capital. Of course, you would have to share a certain amount of equity with them.

At the time of raising funds from investors, you should be cautious. By sharing profits with them, you are letting them be a member of the Board of Directors Team. You will also have to involve them in the decision-making process. You cannot make any decision without their consent. Before getting money from investors, you should carefully understand the upsides and downsides. Go for this when you are completely comfortable with sharing equity and involving them in the decision-making process.

·         Bad credit loans from direct lenders

In addition to banks and investors, you can borrow money from direct lenders, too. Banks do not accept applications from subprime borrowers. If your credit rating is not stellar, you can borrow money from direct lenders only. Whether you need a quick approval loan or a larger amount of money, the approval depends on your business's profitability.

Direct lenders provide a large amount of money, too, but most of the lenders cap the borrowing amount. When your credit history is not up to snuff, they charge high interest rates. They increase the total cost of the debt. They will be sceptical about your repaying capacity and, therefore, will restrict you from borrowing a large amount of money.

·         Credit cards

If you need a small amount of money to invest in your start-up, a credit card could come in handy, but they are quite exorbitant. You will have to settle the entire bill in full when it is generated. Credit cards or a business line of credit could help you raise only a small amount of money. Credit cards and overdrafts are aimed at subprime borrowers too. As long as you have a balance on your credit card or line of credit, you do not need to seek permission from your bank. You can use them as and when you want but remember that high interest rates will be charged.

·         Family and friends

Family and friends are an ideal choice when you need a small amount of money. They will never be able to furnish you with a large amount of money. If you are looking to start an online business and you need a small amount of money, they could prove to be fruitful. While borrowing money from friends and family, make sure that you repay the debt on time. Try to pay some interest as well.

The bottom line

There are various funding sources for your start-up. Understand each financing option so you do not regret it later.