Starting a business can be quite expensive. Unless you're independently wealthy, it is likely that you will need to raise the money to start your company. In today’s world, funding can come from a surprising number of places. It is important that you consider all possibilities to find the ones that will work for you.
Family and friends are a logical first place to start. They know you personally and they understand your ideas beyond what is simply shown on paper. They also have a personal interest in seeing you succeed. However, this option has a number of drawbacks. Your friends and relatives may be motivated to contribute by personal feelings rather than objectivity. If you rely on money from friends who are neither expert investors nor subject matter experts in your field, you lose the critical judgment and advice that you can receive from an impartial expert.
Before accepting money, be sure to have a frank discussion on what will happen if the business fails. Be sure that you have a backup plan for repaying loans. Friends often say, “Don’t worry about it; pay me back when you can.” In reality, if your company fails, your friendships could be damaged by your inability to pay. Finally, if you do accept loans or donations from friends and relatives, be sure to document them as if they were from strangers. Should you later decide to seek venture capital or bank loans, those officials will want to see a paper trail.
Private investors are another option. Venture capital operations tend to deal with more established companies, but “angels” are often willing to take a chance on a brand new startup. However, an angel is not a smiling benefactor waiting to rain down money as a gift. Angels are shrewd investors who expect a solid return on their investment. A well-crafted business plan and excellent negotiating skills are absolutely required to secure funding from an angel.
Bank loans are another possibility. However, banks absolutely demand a solid paperwork trail. They are generally reluctant to invest in brand new businesses unless they are backed by impeccable personal credit. Even then, you must be prepared to demonstrate hard numbers as opposed to projections. Signed contracts from customers, a lot of collateral, and a willingness to forgo your own salary can all help to convince a bank.
Do not overlook creative means of financing your new venture. In many cases, you can start operations on a shoestring, and gradually build your company by reinvesting your profits. This works best for companies that require little or no inventory and are, at least initially, run from a home office rather than a storefront. You may be able to tap into your retirement fund for startup capital. Credit cards are an option, but should be used sparingly. Talk with the Small Business Administration about their financing programs. Matthew Lesko’s “Free Money” books offer a compilation of funding sources ranging from the common to the obscure. With a 90 day money back guarantee, the books are definitely worth a look.
It may seem impossible to come up with money for your business out of thin air, but by preparing a solid business plan and looking into every option possible, you can manage to raise the start-up funds you need. Use your creativity and imagination and keep a good sense of humor to make the process easier. Add a nice portion of patience and you’ll be well on your way to finding the funding you need.