You’ve always wanted to be your own boss, and finally the right opportunity has come along. You’ve got the idea for the next big thing, or you’ve found the perfect location to open the restaurant, and you have the time and the enthusiasm to make your dream a reality. All you need now is some capital for the initial investment. Funding a startup can be a daunting task. There are many options available, and you should certainly consider all of them.
Your Own Money
If you have your own money, you probably aren’t worried about funding your startup. But chances are that your own bank accounts and investments aren’t quite enough to finance your venture. You should, however, start by considering what you can invest in yourself. If you’re going to ask friends, family, banks, or investors to back your startup, you’ll need to show them that you believe in your idea by putting your own money on the line. Banks and investors will be more likely to extend loans if they see the new business owner assuming the majority of the risk.
Evaluate all of your assets. While you probably should not tap into your retirement fund or emergency funds, you may have assets you haven’t considered. Perhaps you have an heirloom diamond brooch or vintage Rolex you inherited. Diamond Estate is one well-known company that can help you sell a Rolex watch and diamond jewelry.
If selling these portable luxury assets is not a viable option, you should consider collateral loan services. A collateral loan can be a great way to secure a cash loan for your startup at a reasonable interest rate. In these types of secured loans, lenders evaluate your portable luxury assets and provide your startup with a cash infusion based on their value.
Friends and Family
When you have a solid business plan in place, and you’ve committed yourself and your assets to your idea, your friends and family should be the first place to start looking for startup funding. Of course, you need to be savvy: you don’t want to offend, and you don’t want to come off as the crazy brother-in-law with the latest get-rich-quick scheme. Provide your potential investors with your business plan, and convince them that you are particularly suited to be a business owner. You should also show them how you have committed your own assets to your venture.
Once you have a friend or relative convinced your business represents a solid investment, help them consider what assets they might utilize, including savings, investments, and the possibility of securing a collateral loan with their portable luxury assets. There’s often a forgotten fine jewelry item gathering dust somewhere, and borrowing money against the value of that asset is a great way to help fund your startup.
Securing funds from family and friends is a long standing tradition in funding a startup, but you should be aware of potential pitfalls. Be sure to follow professional standards when structuring and documenting these ‘friends and family’ loans. When your business grows to the point where it can approach banks and professional investors, lawyers will need to be comfortable with your existing capitalization structure.
If your new business is going to have a positive economic impact on your local area, the first bank you should consider approaching it the community bank or credit union. These banks are focused on investing in the local economy, and there’s a good chance they will take your business model seriously. You will need to present yourself professionally. Have a solid business plan and be ready to answer questions about revenue expectations, market research, and long-term goals. The bank will consider your proposal much more closely than even your father-in-law, so you’ll need to have done your homework and have all your research in order. And even more than friends and family, banks will want to see just how much of your own money you’ve committed to your startup before they commit any of their own.
Another option for funding your startup is credit cards. If you have great credit, you may qualify for a small business credit card. Although funding a business on credit can be risky to your personal finances, you may need to assume that risk if you truly believe in your venture. Many new businesses don’t generate much income in the initial phases, and you’ll need the flexibility of being able to spend more in the first months than your business makes. As you are likely to be carrying a balance, look for cards that feature the lowest APR, or interest rate, even if they aren’t “small business” cards. By using credit cards early in your startup, you may be able to generate enough success to go back to family and friends who were initially reluctant to invest and convince them that your venture is a solid investment.
Small Business Loans
The Small Business Administration was created by Congress in 1953, and has helped millions of small to mid-sized businesses. The first step to securing an SBA guarantee is to apply for a conventional loan and be turned down. Your business must also meet appropriate size requirements specific to your industry. You will then need to apply for a commercial loan from a bank that partners with the SBA, and be prepared for everything that process entails, including a review of your personal credit history, and your business plan. Check your credit report before going to the bank and address any mistakes. The bank will check your credit score, and you certainly don’t want to be surprised.
Venture capital firms pool money from individuals and use this money to invest in a wide variety of businesses whose goal is often to go public. These investors take partial ownership of the business, and when it becomes a successful, publicly traded company, they can realize profits. Raising funds through a venture capital firm is nearly always about meeting the right people. Networking skills are the key to success here, and getting yourself and your business idea in front of an angel investor or venture capitalist is often a matter of reaching out through friends, family, and business contacts. Seek out other business owners who have been successful with the help of venture capital, and ask them about their experience. They can often provide much needed assistance, and help you get your foot in the right door.