If you’re interested in launching a fintech startup — regardless of the category — it’s critical that you have your finances in order. While bootstrapping is an option, it’s not the right direction for every company.
Here’s the good news: there’s no shortage of funding options. In fact, there are so many options that you may find it difficult to choose the one that’s best for you. And that’s why it’s so important to compare the pros and cons.
Here are five of the best places to find funding for your fintech startup:
- Business loan
This is a natural starting point. You’re launching a business so you might as well consider a business loan. Consult with your local bank about any options that are available to you. You should also learn more about the many SBA loan programs.
- Personal loan
A personal loan is exactly what it sounds like. It’s an unsecured loan that you take out as an individual. This is in contrast to a business loan that’s secured in the name of your company.
The benefit of a personal loan is that it doesn’t require collateral, meaning that you’re not taking as much risk.
- Home equity loan or line of credit
A home equity loan or line of credit allows you to tap into the equity in your home to fund your business. With a loan, you receive all the money upfront and repay it monthly over a predetermined term. But with a home equity line of credit, you only take money when you need access to it.
Either way, you’re using your home as collateral. You must be comfortable taking this risk. It’s possible that you could lose your home if you are unable to repay the money that you owe the bank.
- Credit card
Maybe you have a credit card that you can use. Or perhaps you need to apply for a new one. Either way, you can use it for a variety of reasons ranging from paying for services to purchasing new equipment.
You can choose between a business credit card or a personal credit card. Regardless, pay close attention to details such as interest rate, credit limit, and the fee schedule. Along with this, consider applying for a rewards credit card. This allows you to receive points or cash back for every dollar that you spend. You can then use this to fund other business-related purchases.
- Friends and family
This is a top choice for some people, while others shy away from it at all costs. The benefit of a loan from friends or family is that you don’t have to go through a long application process. And in many cases, there may be loosely defined terms and conditions.
On the downside, it’s a risk because you don’t want to ruin a relationship with a loved one. If you’re unable to repay the money in full or as promised, it could put a strain on your personal relationship. And when that happens, it’s not always easy to get back on track. Only you can decide if it’s worth the risk.
Now that you have an idea of where to find funding for your fintech startup, let’s turn our attention to some of the many questions that you may need to answer. Here are five to get you in the right frame of mind:
- How much money do you need to borrow?
- Do you have a plan for how you’ll use the funds?
- Have you borrowed money for a startup in the past?
- Are you willing to put your personal assets and resources on the line?
- Do you know the differences and similarities of your many options, such as loan modification vs. refinance?
The more of these questions you answer, the greater chance there is that you’ll find clarity as to what you should do next.
It doesn’t matter if you’re chasing one of the many blockchain trends or heading down a more conventional road, you must have a clear idea of available funding sources and which one is right for your business.
Would you add any other options to this list? Do you have any experience choosing a funding source for a startup?