Going freelance is the dream of being a self-employed entrepreneur and becoming financially independent. You don't have a boss, and you can set your own hours. However, going freelance has its risks.
How do you get started if you have a family and bills to pay? Where will the money come from? The good news is that there are funding options to finance your freelance business vision.
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Make a Plan
The first step is to make a business plan for how you intend to start and develop your freelance business.
Prepare a budget for your living expenses. This will be the figure you need to cover every month with the profits from your freelance business.
Calculate the amount of sales you'll need to produce the net profits required to cover your living expenses. With this target sales figure, you can develop a sales plan for the number of sales calls or pitches you'll have to make to reach that figure. Depending on your close ratio, you can construct a sales activity plan for the number of sales presentations to make each day to reach your goal.
With these figures and business expenses identified, you can begin exploring the various financing options to fund your freelance vision.
With careful cash flow planning, you can start up and grow your freelance business by using your own funds and profits from the business and not have to take out loans. If you have a full-time job, it may take longer to save enough money to fund your startup, but you won't have to deal with the pressure of making loan payments or being obligated to repay investors.
At a minimum, you should save up at least three months of your living expenses and put it in a separate savings bank account to fund any temporary cash-flow deficits.
Becoming a self-employed freelancer is a pathway to achieving financial independence but financing can be a challenge.
Traditional lenders, like banks, are reluctant to lend to new small business owners without a history of revenue and profits. Banks like to have some sort of collateral to secure their loans since they view sole proprietorships, which most freelancers are, as riskier than established businesses.
Online lenders are a better source than banks for personal loans to freelancers starting a new business. These lenders are willing to accept more risk and make unsecured loans to individuals, such as sole proprietors. The downside is that they usually come with higher interest rates and fees.
Small Business Administration Loans
The Small Business Administration (SBA) is an excellent resource for borrowers that can't qualify for traditional bank loans. Freelancers would be attracted to the Microloan program or the 7(a) program.
Credit Card Line of Credit
A revolving credit card line of credit can be used to finance occasional deficits in your cash flow. However, the maximum line of credit will be limited and may not be sufficient to finance your freelance business. Also, unless you have a high personal credit score, the interest rate can be expensive.
With crowdfunding, you don't have to worry about your credit score or having to meet text loan repayment schedules. You raise money from individuals and compensate them with some type of perk or an exchange for work.
After you have completed work for a client, you can use the invoice to get financing. With invoice financing, a lender, like will use the invoice as collateral and advance a percentage of the face value. In this way, you get the use of the funds immediately, and you can repay the loan from the lender when your client pays you.
Depending on the type of work you're doing as a freelancer, you may be able to find grants to fund your business. Grants are often available for specific groups such as minorities and veterans. You can search online for grants that might be available for your background.