You’ve got this brilliant idea for a new business. It’s sure to make a lot of money and be a huge success. But to get started, you need money. That initial cost is a pretty high barrier to hurdle. So what are you going to do to give your startup wings? Here’s some ways you can provide those financial feathers.
Loans
An obvious way to get money is to take out a loan. Borrowing some cash in order to get started sounds like a very traditional plan. But now there are so many options it will make your head spin. A Small Business Administration (SBA) loan backed by a government guarantee sounds good, but they don’t typically fund startups. If you have gotten started already and need to expand this can be a good option.
Other lenders are more willing to let people borrow money to fund a startup. Banks, credit unions, and online lenders are all good options. But most are letting you borrow money as yourself, rather than as your business. So loans available might be some form of home equity, either a term loan or a line of credit. Or maybe you just want to take out a personal loan. But there are other options.
Personal Savings
You can fund your business straight out of your own pocket. If you have a substantial savings, this is pretty straightforward. But usually people have their money invested in some way, so it may be necessary to liquidate some assets. Retirement accounts can be accessed in various ways to provide cash early, so check into those.
The slowest way is to set aside part of your income to build up a stake. You can work in the same field as your business will be in to earn some money to start, or just take a little of your salary from an unrelated day job. But this can take a long time and your business idea can get stale.
Credit Cards
Probably the fastest, and riskiest, way to fund a startup is by using your credit card. To do this right, you need to be able to pay the balance off in full before interest is charged. That may mean you are buying inventory which you already have a contract to sell, or some other short term need where payment is coming immediately. If not, this can turn into a new debt burden and cost you enormous amounts of money in interest.
Family and Friends
A common funding source, even for startups with money coming from other places, is to ask friends and family to invest, either as a loan or to own equity. Make sure they realize this is a risk. Don’t let them invest more in your company than they can afford to lose. These aren’t regular investors looking for a company with a bright future.
They are giving you the money because they know you. Still, you should treat them as well as you would any other investor. Draw up a contract and make it clear how and when they will be repaid, whether they will get interest, and if they now own a piece of the company. Agreements in writing can avoid hurt feelings later if misunderstandings occur.
Grants
Some business startups qualify for grant money. This can come from government backed programs or from sources within the industry you are joining. Look carefully at the possibility of getting a grant. This is the closest to free money you are likely to get. The cost is the investment of time and energy to write a grant proposal good enough to have it awarded to you. This might take more time than you think, and you might get turned down, but in strictly financial terms you can’t lose.
Crowdfunding
A number of organizations now exist to help people fund projects and businesses by getting money from many people. Kickstarter and Indiegogo are two well known examples. There are some success stories that come from these, but remember that many fail to raise sufficient funds. As with anything, the successful businesses invested time and energy into their proposal and video presentation. A lot of groundwork goes into a successful crowdfunded project. Don’t expect it to be handed to you with no work on your part.
Angel Investors
This is the source where it is handed to you with no work on your part. No, it does require work, just kidding. In this case, the work is to create a solid business plan and have an exciting idea which investors with deep pockets will want to fund for a quick profit or equity in a successful startup. These are experienced investors, so you must present your business plan in a professional way.
One interesting aspect is Angels, and venture capitalists, will sometimes look to see if you have investments from family and friends. The logic is if you can’t convince these people closest to you to invest, why should they? This can be an incentive to work with several sources of funding and not put all your hopes into one.
So there you have it, from borrowing to begging, from gifts from grants to gifts from Angels, the many ways you can raise your cash to put your ideas into flight. But if you’ve been paying attention, you might have caught on to the idea that all of these require some work. Quite a bit of work. That’s a common factor in anything to do with a startup. There’s going to be a lot of hard work involved. But if you are willing to make the effort, you might make it off the ground. And then the sky’s the limit.