Your small business requires your passion, know-how, dedication, and hard work ethic. But it also probably requires some amount of cold hard cash, as well. It can be frustrating to know that the only thing stopping you from launching a company is not having the funds.
There are a lot of options to get the money you need to start a business. Before seeking funds, it’s a good idea to have a concrete plan of exactly how much money you will need, what you will use that money for, and how you plan to earn that money back. It’s never a good idea to spend money that you don’t have without this firm plan in place. Here are some the most popular methods of raising small business capital.
Small Business Loan
Banks and other lenders offer small loans for business start-ups. Going this route generally means that you’ll have to have a business plan prepared to show the lender how feasible your plan is. Most lenders will want some measure of certainty that their investment will be repaid. Business loans are separate from personal finances so that if the business goes under, you will not be personally responsible for those debts. However, it can be difficult to convince a bank to invest in your idea if you haven’t personally invested already.
Venture Capital Firms and Angel Investors
A firm business plan and a dollop of presentation pizzazz might help you land investors who are interested in a slice of the company ownership or equity. The money doesn’t need to be paid back, but the terms of the investment are negotiated in the beginning. Your investment partner will likely want to stay informed on the moves your company makes, to varying degrees of formality. If you’d prefer to be the only person calling the shots in your company, this form of raising capital might cramp your style.
State and local governments often offer grant programs for entrepreneurs, particularly women and minority endeavors. Federal grants are available as well, but most federal grants are extremely rigorous and designed to advance work in the arts, community, science, et cetera. The best bet for an individual looking for start-up grants is to seek out local organizations that offer grants as a method of stimulating economic growth.
Pitch your idea to everyday people using a crowdfunding platform like Kickstarter. Make a short video explaining your idea and why it’s worth investing in, and ask people to share the project and give a small amount of money. There are a number of platforms available to crowdfund and many of the platforms are geared towards one form of fund raising or another. Look for a platform that seems to have a large audience of people interested in your industry, and ask everyone you know to share your page.
Home Equity Loan
Taking out a home equity loan means that you are raising your own personal capital to invest in your business. Although the benefit of a home equity loan means that you won’t have to share partnership or company control and you won’t need to impress anyone with the strength of your business plan, you are completely on the hook for the amount of money that you borrow. It is a much riskier way to raise capital to start a business.
Like a home equity loan, using a credit card to finance your small business is high risk and expensive to use for an extended period of time. But for small purchases when the money can be quickly repaid, a credit card isn’t a bad option in a pinch.
Friends and Family
There are plenty of reasons not to pursue a business relationship with your friends and family, but approaching the people you know with the chance to invest in your company might be the best way to raise money. Knowing that you have your brother or aunt’s money on the line might help you be a more prudent and careful entrepreneur, but beware ruining a relationship by not being able to pay back the money.