Starting a new business always comes with a degree of risk, no matter what you use as funding. Fundamentally, businesses need some start-up capital to get off the ground. There are numerous potential sources for this funding, but each comes with its pros and cons.
Some people choose to use their own income to start up their business. With no interest payments and no strings attached, this is a quick and attractive option for many. The problem is that using your own money increases risk should the business not work. You could lose savings, or dip into retirement funds, reducing options in the future. If you borrow from friends or family, you risk damaging relationships in future.
Banks and venture capitalists are other options, but they present their own set of challenges. So called “Angel Investors” can provide funds to get most of your business off the ground but convincing them to invest can be very tricky and time consuming. Banks, on the other hand, are usually easier to convince, but will charge interest and require timely repayments. If these are not met, your business can find itself in trouble very quickly.
Banks always put their own interests first, which means that many SMEs struggle to get funding. Any pre-existing debt or a low credit score can mean your business is an unattractive investment, even if the business plan is sound. And if you have limited assets to offer as collateral, you may find the banks will reject a loan application out of hand.
There are numerous funding methods available to you, but what is best will depend on your own unique set of circumstances. There is no one-size-fits-all answer.