ISmall-Business.net

Intelligent Business Solutions

  • Home
  • Strategy
    • Small Business Strategy
      • Combining Niches to Maximize Profit Potential
      • High Ticket Versus Volume Niche Selection
      • How to Know When to Cut a Business or Niche Loose
      • Never Put All Your Eggs in One Basket
    • Sales Strategy
      • Facebook Networking Versus Paid Advertising
      • Brainstorming a Successful Sales Funnel
      • Best Practices for Profitable List Building
      • Backend Sales Strategy Tips
      • A Better Way to Use Webinars for Profits
      • Creating a Welcome Email That Makes Money
    • Production Strategy
    • Human resource strategy
  • Management
    • Business action plan
      • 7 Things to Send JVs to Get Them Onboard
      • Don’t Make JV Promises You Can’t Keep
      • How to Host a Challenge and Maximize Profits
    • Small Business Management
      • Putting Profit Tasks First During Time Management
      • How Self Doubt Sabotages Your Financial Success
      • Repurpose Your Content to Save and Make Money
    • Business Management Topics
      • Fighting the Stigma of Failure
      • Figuring Out the Perfect Launch Date and Time
      • Bonus Creation That Catapults You to Leaderboard Domination
      • Do Customers Prefer Video or Text Courses
      • Minimize Your Risk of Refunds with These 5 Tips
      • How Often Should You Email Promo Material
      • Narrow Niche Domination
      • Perfecting the Launch Process for Increased Profits
    • Business Management Blogs
      • Nobody Expects a Perfect Expert
  • Ideas
    • Find business ideas
      • 5 Lucrative Non IM Niches
      • 6 Niches That Are Hot on Social Networks
      • Are PLR Stores a Viable Way to Make Money
      • How to Know If a Membership Site Is Right for You
    • Idea feasibility
      • How to Make Money Off a $7 Product
      • Recurring Income Options
    • 10 top business ideas
      • Could Coaching Bring in More Money Than Products
      • Individual Coaching Versus Group Coaching Profits
      • Building a Reputation as a Powerful Affiliate
      • Pinterest Profit Niches
    • Low cost business ideas
      • Making Money Off eBooks and Reports
  • Valuation
    • Business Valuation
    • Increase business valuation
      • Making Wise Investments in Tools to Further Your Business
    • Business Valuation Methods
    • Understand business valuation
  • About
    • About Me
    • Blog
    • Contact Us
    • Sitemap
    • Privacy Policy
  • Strategy
  • Supply Chain
  • Customer Focus
  • Entrepreneur
  • Biz Opportunities
You are here: Home / Strategy / Where to Get Your Initial Startup Money

Where to Get Your Initial Startup Money

May 23, 2019 by Asif Nazeer Leave a Comment


Where to Get Your Initial Startup Funding

The biggest question on most would-be business owners’ minds is, “Where will I get the money to start my business?” There are plenty of options — but some are better than others.

Startup Funding Sources

Here’s an overview of the good, the bad and the ugly ways to finance your new business.

Friends and Family

Friends and family are the number-one source of startup financing for most small business owners. In a Small Business Trends survey in 2017, 26% of respondents said they considered friends and family their most reliable source of capital. After all, if your friends and family don’t believe in your business, who will?

You can either borrow money from your friends and family or make them investors and give them a stake in your business. If you borrow money, make sure you treat it as a loan just as you would with a loan from a bank or credit union. Draw up loan documents (you can find templates online) and commit to repaying the money on a set schedule with interest.

Getting an investment from friends and family may seem like a better idea than borrowing because you don’t have to pay the money back. But keep in mind that if your friends and family members become shareholders, they may feel entitled to take a bigger role in directing your business then you’re comfortable with. Do you really want Uncle Joe telling you what to do with your website? Of course, if you do have a friend or family member whose business experience and advice could be valuable, taking them on as an investor could be a good idea.

Personal Credit Cards

Nearly two in 10 (19%) business owners in our survey think credit cards are a reliable source of financing. However, as a startup business owner, your business does not have any credit history of its own, so if you plan to use credit cards as a financing method, you’ll have to use your personal credit cards at first.

Using credit cards for business financing can be risky if you don’t manage your debt carefully. The best way to use credit cards is to pay for things you know you’ll be able to sell for a profit, which you can then use to pay off the credit card balance. For instance, if you’re starting a landscaping business and you need to buy gardening tools, plants and seeds for your first job, you could charge the purchases on a personal credit card and use the proceeds from the job to pay it off. Be aware, however, if you don’t get paid before the credit card payment is due, you could end up incurring interest and get in over your head.

Personal Savings

Using your personal savings to start a business allows you to avoid going into debt or giving away any equity in your business. Investing your own money can also be a good motivator for success: when you’re playing with your own money, you may be more likely to plan carefully and less likely to take unnecessary risks than you would if someone else is footing the bill.

If you don’t have personal savings you can tap into, look for ways you can raise cash to put towards your business. For instance, if you have two cars, could you sell one for startup capital? Perhaps you have a collection of vintage Star Wars figurines or some old savings bonds you could convert to cash. Of course, you can also delay your startup a bit and build up your savings while you plan for your business launch.

Microloans

Microloans are small loans, sometimes as little as a few hundred dollars, often designated to assist business owners who have limited work experience, live in underserved communities or are starting businesses that will help give back to the community. If you need a small amount of money, such as $5,000 to $10,000, a microloan could be the perfect solution. Kiva and Accion are two well-known microlenders. Microloan.org Is a portal that matches entrepreneurs with micro-lenders nationwide. The SBA also offers microloans through specially designated intermediary lenders; the average SBA microloan amount is about $13,000.

Bank and SBA Loans

The first place you think of going for startup capital might be the bank. In reality, it’s very rare for startup businesses to receive a loan from a bank or even an SBA guaranteed loan (loans made through participating banks and partly guaranteed by the SBA). Some 75% to 80% of SBA loans go to established companies, according to LenCred founder Tom Gazaway.

Why is it so hard to get a bank loan? In order to help make sure they’ll get their money back, lenders typically want to see things a startup business doesn’t have: a documented track record of success, financial statements showing adequate sales to service the loan, and a strong business credit history.

You may have a better chance of getting a startup bank loan if you can demonstrate some degree of business success, such as signed orders from customers, and if you have a strong personal credit score. You may also have more success with online lending sources, which sometimes have more lenient criteria for loan approval.

Crowdfunding

If you expect to finance your start up through crowdfunding, it’s time for a reality check. Although crowdfunding sites generate a lot of buzz, very few businesses actually get financing this way. (In reality, 63.71% of Kickstarter projects failed as of August 2018.)

Successfully crowdfunding your business requires a lot of hard work, including a well-thought-out media campaign to attract attention, a tantalizing offer for your contributors and an exciting product that has the potential to generate lots of buzz among consumers (such as a new tech gadget). Get the scoop about crowdfunding.

Venture Capital

Venture capital investments are setting records—but unless you are starting the next Facebook, don’t expect VCs to finance your business. Just 0.5% of entrepreneurs get capital from venture capitalists, reports Scott Shane, A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University. Venture capitalists expect a return of at least 10 times their investment, seek companies with huge growth potential and will expect to take a lead role in managing your business (which probably isn’t something you want anyway).

Angel Capital

Angels are wealthy individuals who invest their own money in small businesses, either individually or as part of angel groups. However, angels generally don’t invest in businesses at the startup stage. They’ll want to see proof your business is already successful with a strong potential for growth that can bring them a big return on investment. Learn more about what an angel investor looks for when investing.

Franchise Loans

Are you buying a franchise business? If so, you may be that rare startup that’s able to get a bank loan. Franchisees are considered more fundable than the average startup because the franchisor is there to help them through the risky startup stages. Since you’ll be working from a proven franchise system, not your own business plan, lenders can feel more confident they’ll get their money back. In addition, many franchisors have approved lending sources to which they direct new franchisees.

Grants and Awards

Contrary to what you may have heard, the government doesn’t hand out free money to start businesses like candy. Most grants are for nonprofits; the grants for for-profit startups that do exist are few and far between, and generally require your business to meet stringent criteria. The Small Business Innovation Research (SBIR) & Small Business Technology Transfer (STTR) programs provide grant money for firms doing research that can lead to commercially viable technology. If you’ve got a lot of patience, you can search for federal government agency grants at Grants.gov. Also check out these grants for small businesses.

Where Not to Get Startup Money

There are a couple places you should never turn for startup money. Don’t put your home or your financial future at risk to start your own business. If you take out a home equity line of credit or get a second mortgage on your home to finance startup, you could end up losing your home (and destroying your credit rating in the bargain). By the same token, don’t borrow from your retirement plan to launch a business unless you are nowhere near retirement and feel confident you can rebuild your nest egg if need be.

By looking in the right places, you can find the startup money you need. It just takes time, patience and the willingness to get creative.

Image: Depositphotos.com

This article, “Where to Get Your Initial Startup Money” was first published on Small Business Trends





Source link

Filed Under: Strategy

About Asif Nazeer

My current sphere of interest is Internet Marketing - Worked for many years in finance and banking. I now consult for small businesses and starts ups. Also involved in venture capital for new companies.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Sign up for our newsletter and receive a free EBook on how to boost productivity






Find it

Blog By

Small Business Consultant and Accountant helping grow your small business Read More…

Follow us online

  • Email
  • Google+
  • LinkedIn
  • Twitter

Recent Posts

A Beginner’s Guide – Running Your Business

Featured image by Kindel Media via Pexels Many factors contribute to the … [Read More...]

  • 2023 Beginner’s Guide – Marketing
  • Desktop Fiber Laser Engraving Machines and Their Uses – Business
  • How to Rebuild a Business Hit with Water Damage – Business

Archives

  • February 2023 (1)
  • January 2023 (5)
  • December 2022 (5)
  • November 2022 (8)
  • October 2022 (7)
  • September 2022 (6)
  • August 2022 (6)
  • July 2022 (13)
  • June 2022 (11)
  • May 2022 (7)
  • April 2022 (8)
  • March 2022 (12)
  • February 2022 (8)
  • January 2022 (11)
  • December 2021 (9)
  • November 2021 (10)
  • October 2021 (11)
  • September 2021 (3)
  • August 2021 (10)
  • July 2021 (12)
  • June 2021 (5)
  • May 2021 (10)
  • April 2021 (17)
  • March 2021 (40)
  • February 2021 (39)
  • January 2021 (58)
  • December 2020 (66)
  • November 2020 (59)
  • October 2020 (38)
  • September 2020 (47)
  • August 2020 (37)
  • July 2020 (2)
  • May 2020 (1)
  • April 2020 (1)
  • March 2020 (33)
  • February 2020 (25)
  • January 2020 (20)
  • December 2019 (27)
  • November 2019 (28)
  • October 2019 (34)
  • September 2019 (38)
  • August 2019 (13)
  • July 2019 (44)
  • June 2019 (40)
  • May 2019 (58)
  • April 2019 (51)
  • March 2019 (43)
  • February 2019 (44)
  • January 2019 (43)
  • December 2018 (47)
  • November 2018 (43)
  • October 2018 (58)
  • September 2018 (44)
  • August 2018 (60)
  • July 2018 (49)
  • June 2018 (58)
  • May 2018 (54)
  • April 2018 (39)
  • March 2018 (46)
  • February 2018 (48)

Biz Opps

Featured image by Kindel Media via Pexels Many … [Read More...]

As companies continue to intensify efforts to … [Read More...]

Featured image from Unsplash Laser devices can … [Read More...]

Customer Focus

First published in Exchange, the magazine of the … [Read More...]

Entrepreneurs

Uptown Cheapskate is a resale store for young … [Read More...]

A team of neuroscientists in the United States … [Read More...]

This article was translated from our Spanish … [Read More...]

Strategy

If you buy something through our links, we may … [Read More...]

In helping celebrate Black History Month, Facebook … [Read More...]

ZOHO started its current Email Marketing Basics … [Read More...]

Supply Chain

Although managing inbound shipping can be … [Read More...]

© Copyright 2015 iSmall-Business.net · All Rights Reserved · Powered by ISmall-Business.net · Admin