One of the most difficult things associated with starting your own business is finding the funding needed to open your doors. There are many options available to you to help finance your startup business. Each of the following financing options available for your startup have pros and cons associated with them, but any of them may provide you with the funds that you need to begin your entrepreneurial dream.
1. Personal Resources
An obvious source of capital for your startup business is funds that you have available to you personally. This can include equity in your home, assets held in your qualified retirement account, such as a 401(k), an individual retirement account or money that you have in your savings and/or checking account. The benefit of using your personal funds for your business is that the money is not subject to repayment, as in the case of a loan. The downside of using your personal resources, however, can include penalties or fees associated with accessing a retirement account as well as the loss of the use of these funds for other purposes.
2. Bank Financing
Borrowing money from a bank or other lender can provide you with immediate access to the funding needed for your startup. Taking out a loan from a bank requires you to make an application with a financial institution and meet their qualifications and requirements in order to be approved for the loan. The advantage to getting financing through a bank is the ability to meet face-to-face with the lender and obtain approval almost immediately. If you have problem credit, however, qualifying for a business loan may be difficult.
3. Venture Capital
Venture capital is a form of financing provided by a consortium of investors looking to invest in a business or a business concept. Venture capitalists will review your business plan and perform other due diligence necessary to determine the viability of your business and whether you are a worthy investment risk. Although venture capital provides you with a great source of capital for your business, you may find yourself beholden to the terms of the agreement you hash out with your investors.
4. Angel Investors
Angel investors, like venture capitalists, provide help to small businesses looking to access capital for their startup. Angel investors are typically successful entrepreneurs looking to provide opportunities to individuals whose business may spur the next generation of economic growth. Angel investors tend to be highly selective about the types of investments that they get involved in, so if your business plan does not fit their funding profile, your chances of accessing these funds may be slim.
5. Crowd Funding
Crowd funding (not to be confused with crowd sourcing) is becoming a more popular way for small businesses looking for startup capital to find it. Crowd funding involves putting information about your startup business online and encouraging individuals within your social networks and the public generally to pledge support. If you have a large social network, crowd funding may be the perfect way to raise the initial capital you need. The amounts raised through crowd funding donation and lending based campaigns, which do better than larger equity-based campaigns, raise lower dollar amounts for your startup.
By keeping your options open, and understanding the pros and cons of each choice, you will be well equipped to make wise business decisions when it comes to the funding of your startup.