When I started my first business, I had a business partner, and during the initial stages, we used funds from friends and family. We continued to use family debt capital until we became big enough to attract financing from angel investors. In reality, the majority of small businesses collect funding from a range of different sources which are phased out and replaced as they grow.
There is not really any one source of funding that is guaranteed to be easier to secure than another. It all really hangs on your business model, future profit projections, and how good you are at selling your vision to potential backers. The key is to stay positive and consistent with your efforts. No matter if you are a start-up seeking seed capital or an established small business looking to expand, you need to be flexible.
Presented below are four possible ways to fund your small business:
1. Self-fund ("Boot-strapping")
Most new entrepreneurs and small business owners quickly come to the understanding that they are probably going to have to self-fund their ideas for a long period of time before they can realistically start exploring more formal funding opportunities.
There are lots of different ways to self-fund your projects from emptying your savings accounts to leveraging personal assets to applying for a low-interest personal loan to maxing out zero interest credit cards. You could also use auto title loans for older cars and utilise the assets you have to make your dream come through.
If you believe in the vision you have for your business, you should have no qualms about investing your own money in your venture. If you don't put any of your own money into your business, you might find it hard to convince potential investors to feel comfortable investing in you. You have to be resolute in your determination to run a profitable business.
2. Ask Friends and Family
Getting funds from family members and friends is a popular way to collect some initial capital to start your business. What's more, people who are close to you are more likely to believe in your ability to turn your visions into reality. The downside of accepting funds from friends and family, however, is that if your business fails, you risk losing invaluable personal relationships. It is for this reason that you need to make sure that all agreements are properly structured.
To prevent friends and family being made to feel like "fools" in the event of your business collapsing, I would recommend that you structures funds from them as high-interest 1-year loans. Don't borrow more than you need. Get enough funds to launch operations, develop a website and put together additional pitch material for securing bigger investors. While you want to avoid lots of legal fees, it's essential that all parties involved seek professional legal advice. Failure to seek sound legal advice could end up costing everyone much more in the future.
3. Small Business Loans
So, you are probably thinking that there's no way you will be able to get a small business loan from a bank without a good credit history, right? Well, in the early days, my business partner and I came up against bank loan rejection letters all the time. While researching for this article, however, I can across some companies that specialize in aiding small businesses to get fast access to creditors.
One company that really caught my eye was All Business Loans. According to the CEO of the company, whose name is Mike Kevitch, startups that want to seek loans from banks need to have a solid business plan, profitable projections and a commitment to invest some of their own money into the venture.
Securing capital of any type can be a full-time job, but firms like All Business Loans can help to take some of the stress out of it. A further reason to explore debt financing is that you don't have to give away a percentage of your business with that type of funding.
4. Angel Investors
This option for raising money is the one closest to my heart, as it is the path that my business partner and I experienced enormous success with. That said, a lot of our success had to do with leveraging the right connections and good timing. In our experience, securing funds from family and friends first helped to open the door to angel investments. You can gain a lot of trust by repaying your early investors with interest.
Just because an individual lent you money to initially launch your business doesn't mean they will be the right financial partner in the long term. When raising funds from angels or VC's, you need to remain aware of the fact that they are going to own a percentage of your business.
This means you have to shoulder the responsibility of always acting in the best interests of the business as well as its shareholders. Angel investors can be difficult to attract and no matter how enthusiastic a particular investor sounds during initial conversations, the devil nearly always turns out to be in the details.
You need to know your business plan inside out and not fear transparency. You have to back up all your valuations with real projections and cultivate a relationship grounded on trust.
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