“An entrepreneur without funding is a musician without an instrument.”
– Robert A. Rice Jr.
Starting a new business takes money. There is no getting around it. There are a lot of ways to get the cash you need to start your dream.
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Here are some means to fund your Business:
- Your own savings.
- A grant or grants
- Crowd funding
- A venture capital firm or angel investor
- Business revenue
- An SBA or small business loan
- Family and friends. Each funding method has its advantages and down sides. Not one of them is the best fit for every situation. You may end up exploring several different alternatives to get the funding you need.
Your own savings You can finance your business from your own savings or perhaps through a mortgage on your home. Self-financing has the advantage of not leaving you in debt (if you don’t mortgage the house) and not having to give away a piece of the equity of your business. The problem is, starting a business costs a lot and you may not have enough in savings. Further, if the business does go south, you could be left without a home. Use care in this approach to financing.
Grants There are all sorts of grants out there. Mostly from the government. You have two challenges. The first is to find the grant. FederalGrants.com can help you here. It can be difficult to find one that is right for you. Grants are often based on business type and demographic. Are you say a minority living in a specific place who wants to start a certain type of business? Once you have found your grant, you have to apply for it. The application process can be very competitive. It is free money after all. The fact that it is free money is what makes it worth going after. Grants can range from $100 to millions of dollars. Just keep searching until you find the one that is right for you.
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Crowd funding is the new kid on the block. Crowdfunding has grown 1,000% over the past five years. Through a crowd funding site online you post your project or business. You get lots of small contributions that are made in return for products, services or a piece of the business pie. Kickstarter is the oldest name in the crowd funding world. They cater to creative projects. You can also use Indieggo for crowd funding.
Angel Investors Angel investors are real, and infuse over 20 Billion per year into starups. 80% of that money comes as seed or early stage infusements of $5000-$100k Angel investors help small businesses and get a share of equity in return. Many of them are entrepreneurs themselves and some want to give back to the community.
Venture Capitalists Venture capitalists invest their own money, while angel investors use their own. You will definitely need your financial projections in order and have a business plan to approach either of these groups. Venture capitalists fund businesses in the more advanced stages of startup, with rounds of financing starting at $2 million. Venture capitalists will require equity in the company.
Business Revenue Okay, you can’t start a business on its own revenues. That would be impossible. But you can fund business growth out of your ongoing revenue stream. This might lead to the business growing more slowly than it otherwise might. However, funding through revenue keeps you out of debt which means no interest expenses. It also means that you keep all of your business. You don’t have to give away any equity.
The SBA (Small Business Administration) The SBA has all sorts of ways to get you money. They operate with the government and work with banks. The majority of small businesses are in operation thanks to loans through the SBA. If you decide to go to the SBA, dig out every single scrap of paper and every piece of information about yourself that you can find. The SBA is going to want it all. You will be asked to provide personal information, including a resume, a business plan, personal and business credit reports, income tax returns, financial statements, bank statements collateral and a variety of corporate and business documents.
Family and friends You can borrow money from your family and friends, or offer them a piece of the business in exchange for cash. The problem with this approach happens if the business does not do well or if it fails. Good relationships can get really strained under these circumstances.