Youâ€™ve spent years dreaming about starting your own business and now youâ€™ve finally decided to take the leap. But thereâ€™s only one problem, after taking the leap, you discover you lack the finances to keep you and your business afloat. Several entrepreneurs have found themselves in this exact same situation and it has led them to make choices that they came to regret.
Being desperate for financing is a bad place to be because it can lead you to make regrettable decisions. By getting financing from the wrong source, you can find yourself deep in debt if you are unable to pay back as agreed and this can lead to you losing your business or even much more.
A financing option for your business you should avoid as much as you can is Debt Financing. Debt financing isnâ€™t limited to one type of financing but actually consists of; micro loans, credit cards, business loans, and peer-to-peer loans.
Credit cards and business loans are the most risky because a default in payment can lead to you carrying a financial burden that can hang on your back for the rest of your life. Scariest part is the debt can actually inherited by your family upon your demise.
Some clear cons that should inform your decision in the event you chose to opt for debt financing include;
- Paying Back the Debt
Repaying debt isnâ€™t a problem as long as you have a steady stream of income. But a breach in that stream can spell trouble as the principal debt and interest continue to accumulate. Business debt financing can be a risky venture if the future of your business or income isnâ€™t wholly certain.
- High Interest Rates
In most cases, the amount of interest you end up paying by the time you fully satisfy your debt can end up far exceeding the initial principal sum. Also, in the event you opt for a loan with a variable interest rate, you can see the interest on your loan shoot sky high depending on economic influences.
Less risky financing options
Thereâ€™s a limit to what business insurance can protect you against and it surely wonâ€™t protect you from the consequences of choosing the wrong financing option. Rather than keep you and your business trapped in a continuous cycle of debt, why not opt for one of these safer alternatives.
- Alternative Lenders: Some of the benefits youâ€™ll have access to by choosing this option include longer terms, quicker financing, and lower interest rates.
- Angel Investors: These are quite literally angels, but they come in the form of man to bless your business with much needed financing. An angel investor can be anyone from your friends and family or even a mere acquaintance who likes your business idea
- Venture Capitalists: This is another good option but remember that these investors arenâ€™t financing you out of purely the goodness of their hearts. They want to see your business succeed so they can own a bit of it. Thus get to know more about such an investor before getting in bed with them.
- Thereâ€™s also the option of crowd funding.
Whichever option you settle on, be sure to thoroughly research it in order to determine how ideal it is for your business.