Small Business Business Small Business: What Are Your Options For Start Up Capital
Your first and easiest source of start-up funding may logically be your friends and family. They know you, your dreams, goals and ideas, and they know how motivated you are to carry out the plans that you've surely told them about already. However, entering into a business relationship with friends and family isn't always a good idea. These people won't be able to be objective about their contribution and may only be providing you money based on personal feelings. Money and emotions should never mix. In addition, finding other sources of investors that are experts in the field may prove to be more useful, as these individuals can provide you with advice and counsel for your business.
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 re-investing 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.
Raising start up capital can be difficult. However, by looking creatively at the problem, writing a sound business plan, and considering every available source of funding, it is possible to find the money for almost any new business venture. Patience and a sense of humor are invaluable.
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