Small Business Ideas & Small Business Marketing: Sources Of Business Startup Capital

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October 7, 2007

Sources Of Business Startup Capital - Assessing Your Options

The following article is from a series of business articles and tips on finding business start-up funding ...
Starting a business can be quite expensive. Unless you are independently wealthy, it is likely that you will need to raise funds to start your company. In today's world, funding can come from a surprising number of places. It is important that you consider all options to find the ones that will work for you when it comes to finding start-up capital.

The most logical people to turn to when you're in need of money are family and friends, as these are individuals who know you and how you feel about where you're going with your business ideas. Also, they're going to take a personal interest in your success. The problem with accepting money from family and friends is that they're often too close to you - which is why they lend or give you money in the first place. Misfortune with your new business can leave you with bad relationships. Another reason why friends and family aren't the best option for funding is that they may not know much about business in the first place, and won't be able to provide you with outside advice that you might receive from other sources of start-up capital.

Before accepting money, be sure to have an honest discussion on what will happen if the business does not go as planned. Be sure that you have a backup plan for making loan repayments. 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 take on 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 investors 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-written business plan and excellent negotiating skills are absolutely required to secure start-up capital from an angel.

Bank loans are another option. However, banks absolutely demand a solid paperwork trail. They are often not willing to invest in brand new start ups unless they are backed by impeccable personal credit. Even then, you must be prepared to show hard numbers as opposed to projections. Signed contracts from clients, 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 limited budget, and slowly 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 home rather than a rented office location. 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.

There are a few things that will help you find the proper funding to start up your own company. A carefully-written business plan, knowing your short and long-term objectives, being open to different possibilities, a sense of creativity, and a good deal of patience are prerequisites to finding funding options for the start-up capital your enterprise requires.

For more information on raising start up capital for your new company, visit: Raising Startup Capital

Posted by David at October 7, 2007 5:23 AM