Early on as an investor, you may think that finding what to invest in is the most difficult part, but those who have gone a step further and found something worth investing in will tell you that financing your investment can be an equally if not more daunting challenge.
If your investment is such that you can finance it yourself then you are in a better position than others, but in case your investment requires a high initial investment the challenge is quite different because this is where you’ll have to source for financing outside. Some good source of financing include:
Savings: This is definitely the best option because it will guarantee that you are free to work independent of the influence of others, and you can always guarantee yourself a fair share of the pie. If you believe you may be making investments sometime in the future, then it is a good idea to start saving early on.
As soon as you get your first job you should start preparing for that investment even if you still don’t know what it is. Don’t wait until you have an idea in your head before you start saving. By then it may be late.
Family and friends: Family and friends can play an important role in financing your ventures. Family members may give you cash gifts, loans, or even buy into the business. This is definitely easier than getting the money from an outside source.
Bank Loans: Banks can offer a variety of loans depending on how you plan to repay them. Banks will however require a guarantee of repayment, so before you go asking for the loan, it is important that you establish how much profit your business can generate and whether it will be enough to service repayment of the capital plus the interest. Don’t take a loan you won’t be able to pay back.
Customers: Seeking advance payments from customers is a good way of ensuring that the business pays for itself. The payment from customers can ensure you acquire materials for the job much more easily and unless you fail to deliver the final product, you won’t have to pay back anything.
Suppliers: Suppliers can also be an excellent source of financing. You can come to an agreement with your suppliers to supply you with the things you need, but with a delayed payment. This means you won’t have to pay for your purchases until a later date. This can give you enough time to get your business going and start generating profits before having to pay for the supplies.
Sometimes it may not be possible to secure all the financing you need, so you may have to stretch whatever little you can acquire. This is where you have to put your bootstrapping skills to good use. Bootstrapping is all about smart money management.
Bootstrapping is all about reducing expenses in whichever way possible. It enables you to see opportunities for cash efficiency that you wouldn’t have otherwise seen.