Finding The Money
Finding the money to fund your new company (or an existing company) can be an interesting experience. A good business plan can help you determine how much money you need to get started. Truthfully, most new businesses are started with the owners own cash, credit cards, friends and family, etc. without any type of plan whatsoever. However, weve detailed some methods for you to find the money for your new company.
Weve broken down the sources of finding money to 3 areas:
The dictionary definition of bootstrapping is "To promote and develop by use of ones own initiative and work without reliance on outside help". Most small businesses are started with nothing more than the owners own money, work, and debt (usually credit cards, home equity loan, etc.). This is also jokingly referred to as "sweat equity".
To get their venture launched, entrepreneurs have utilized many methods for startup capital, these include but are not limited to:
- Credit Cards
- Friends and Family
- Home Equity Loans
- Personal Notes or Loans from a Bank
- Cashing in Pensions, IRAs, 401(k)s, etc.
- Small Business Investors ( Corporations and LLCs are perfect for this because they can sell "shares" or "interest" in the company to help fund the startup phase. NOTE: friends and family can be investors as well. )
- Cashing in Stocks or Bonds
- Federal, State or Local Grants — click here for a list of Federal Grant Resources
2. Small Business Administration or Bank Loans
Many small businesses are started with the help of a bank loan or a Small Business Loan from the Small Business Administration (SBA). SBA loans are loans from a private bank with the SBA as the "guarantor" of the loan. This means that the SBA will absorb some of the risk on behalf of the small business. To get an overall view of small business financing and small business loans, please visit the SBAs site dedicated to financing your business.
Getting a loan from your bank is fairly straightforward: simply call or visit your local bank (or a national bank such as Citibank) and ask about the requirements for getting a small business loan. Depending on the bank, the loan process may be fairly easy or extremely complex. To help you understand what this process may be like and what it may require, please visit the SBAs page on borrowing money.
Recommended Resource: Business.gov (The U. S. Governments Small Business Resource site) has a page on finding Small Business Financing at both the state and federal level.
There are basically 2 types of SBA Loans: the Basic 7(a) Loan Program which is the most used type of loan the SBA offers and is available in amounts up to $2 million dollars; and the MicroLoan Program which specializes in loans for small business up to $35,000 dollars.
Click here for information and help with applying for a Basic 7(a) loan from the SBA
Click here for information and help with applying for a MicroLoan from the SBA
Recommended Book — The SBA Loan Book by Charles H. Green (amazon.com)
Forming a Corporation or an LLC is a great way of creating a new business credit profile that is separate and distinct from your personal credit profile (which may be poor). In essence, this will create a new "person" that allows you to build up a pristine credit profile and enables you to receive bank loans, lines of credit and credit cards that you would not be able to acquire using your personal credit profile. To learn more about building business credit, click here.
3. Venture Capital or Angel Investors
Some business ideas are so good and have so much potential that obtaining venture capital may be the way to go. In this process, the entrepreneur submits his business plan to a venture capital firm (or more than likely, knows someone who knows a venture capitalist). The venture capital firm will review the business plan and, if interested, offer to provide startup money (usually well over $100,000) in exchange for an equity stake in the company.
Anyone familiar with the "dot-com boom" of the late 90s knows that this can be a long and difficult process but the rewards can be astronomical. Companies like Yahoo! and Amazon.com were funded in this manner (and their founders are worth billions), as well as many other companies you are familiar with: FedEx, Google, etc.
This is not to say that you need venture capital to become a great company. Most of the large businesses you are aware of started as a small business with little or no help, then obtained venture funding or "went public" after they had grown relatively successful.
Another source is what is called the "angel investor". This is usually a private investor who has considerable amounts of money to invest in new business ventures, the proverbial "rich uncle". Most people dont have access to these types of investors but weve listed some resources below.
Here are some great venture capital and angel investor resources:
- vFinance.com — venture capital directory
- TheFunded.com — see how entrepreneurs rate VCs
- Y Combinator — gives entrepreneurs seed capital and advice.
- Recommended Book — Inside Secrets to Venture Capital by Brian E. Hill (amazon.com)