Let me start this part off with an admission – this is not my area of expertise. I have a limited knowledge and so I can give a very general review of possible financing options out there for any business owner. You should look into the many offices that offer Small Business support in your area. That could include SCORE, a local bank, or the SBA office.
Everyone has heard the saying, “Money makes money.” Well, it’s true – it takes money to make money. Even with the lottery, it took the investment of purchasing the ticket to win. Even if the ticket was gifted to you, someone put up the money.
All businesses need money to operate. How you get that money depends on a number of factors. In this post, I’ll go over some of the possible ways along with what you’ll need to qualify.
Generally, you either have the money, need to borrow the money, are given the money, or find people to invest in your business with the expectation of a return on their investment.
So, let’s start with the scenario where you have the money. YAAAAYYYYYYYYYY!!!! Lucky you! Most new businesses don’t start off in this position so you’re already ahead of the pack! Be sure to keep track of how you use your capital in the beginning and estimate how long you’ll need to use it before you are able to turn a profit. Understand, if your business fails, the money you’ve invested is lost. Sorry to be so blunt, however, it is something you should seriously consider, and accept.
Borrowing the money is another option. Borrowing means it has to be paid back. Borrowing can be beneficial because it gives you some time to use the capital that needs to get paid pack at a later time and in smaller payments over that time. The cost of interest is always something that should be considered. There are a lot of places that will give you low interest loans and others that will try to take advantage of you because you’re new and they’ll think you’re desperate. Ask the following when considering a loan:
- How much do you need?
- How long will you be given to repay the loan?
- Are there any upfront costs for borrowing?
- Is the rate fixed?
Be sure to look at these things and make sure they fit into your plan. The worst thing you could do is get stuck with a loan you cannot afford to repay.
Depending on how long you’ve been in business, you’ll need to demonstrate your personal ability to pay, which means be prepared to have your personal credit checked.
Start-up grants for businesses used to be plentiful but are very hard to come by now days. The government used to be the go-to for small business start-ups, but those opportunities are dwindling and very difficult to get because they’re so competitive. There may be some non-profits in your area that give small startup grants or even free services to help startups. Research to find those in your area. Almost always, grants come with stipulations controlling how the money can be used. This means before you accept the grant you need to be sure you can adhere to those stipulations.
An additional option for funding the start-up of your business is by getting investors. This is different than a loan, or a grant because in exchange for giving you the money, the investor expects to have a stake, some form of ownership, in your business.
You’ll want to be careful of how much of your business you give stake in. I would think you’ll want to maintain control so, of course, I would recommend keeping at least 51% of your company.
Also, whether or not you’re eligible to have investors depends on the business entity you select. Every entity isn’t allowed to issue stock and some that are, have limits. S-Corps have a limited amount of stocks that can be issued and while C-Corporations have an unlimited amount, they are more regulated.
There are a lot of things to consider when thinking of options to raise funds to start and run your business until it can sustain on its own. This is just a general overview of options and things you should consider. Be sure to research your funding options and consider how they fit into your plan for your business!