10 Ways To Fund Your Business - Entrepreneur University
A common question that many entrepreneurs have when they are starting or growing a business is how to get funding for the business. Most people only think about if they can qualify for a bank loan but there are many other alternatives.
For this edition of Entrepreneur University I’ve turned to SCORE Business Counselor Alvah Parker who gives us the top 10 ways to fund a business:
1. Self-funding - You provide the capital necessary to start your business with your own savings and assets.
2. Friends or relatives often have money to invest. The loan can be structured so that there is a benefit for everyone involved.
3. Line of credit - If you have an asset that is valuable a bank will establish a line of credit for you. People use their homes as the asset or if you are already in business your business could be that asset. With a line of credit you might have access to $100,000 but you pay interest only on the amount you actually use.
4. Personal loan - A bank gives this type of loan based on your borrowing history and credit you have established with them or based on an asset you own. With a line of credit you only use what you need and pay interest on that. With a personal loan you get the full amount and pay back both the interest and principal over time. Whenever the loan is secured by your home, proceed cautiously. It is possible to lose both your home and your business if you fail to make your payments.
5. Credit Card - In today’s market many credit card companies are offering 0% financing. If you know you can pay back the money relatively quickly, this is free way to borrow. This method should be used cautiously. Interest rates can go up.
6. SBA loan (US only)/Commercial loan - The SBA doesn’t actually loan money but they will guarantee your commercial loan for the bank. To apply for this type of loan the bank will want to see a business plan along with some financial information about you.
7. Grants - NIH (in US) gives grants for Small Business Innovation Research (SBIR) and there are also grants called Small Business Technology Transfer (STTR). To learn more about this go to: grants1.nih.gov There may be other grants in your specific industry. One place to do research on grants is through the appropriate industry association connected to your business.
8. Micro loans - These are loans from nonprofits or government agencies that focus on economically deprived communities and minority groups. These are usually loans for small amounts of capital for example under $25K. Organizations like Working Capital and Small Business Development Corporations in various communities offer these kinds of loans.
9. Angel investors - These are investors who provide money to start up business. They take a greater risk than a bank and will want to make more money because of that.
10. Venture Capitalist - These are groups that have funds available who are willing to take a big risk (often on new technology) and expect a high return. This is usually a source for an existing business rather than a new one. VCs invest large amounts of money in the business and therefore own a large part of the business. Their goal is to sell the business in a relatively short time. One way they sell the business is by taking the company public through an IPO (Initial Public Offering).
Evan Carmichael
Evan CarmichaelYoungEntrepreneur.com Blog Manager
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6 Comments so far
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Hi,
Thanks for sharing these “10 Ways to Fund your Business”. Well, I’m absolutely agree with these ways, and I agree most is in #1. Self-funding , it is true in the sense that, you can’t fund a business through owning another’s money but your money. The money from your own savings. Anyways, great post! This could be very helpful and useful.
Best of luck,
-Sweet Apple-
Hi,
This is a good list, but I would commend anyone to think a bit more widely about your category 1 - self funding. People normally think about their own funds as being the money they have already in savings, other assets such as available equity in their homes, 401Ks, personal loans. But the savvy entrepreneur creates revenue quickly to build the business. So often one hears excuses for not getting into the market, like I have not yet finished the business plan, the prototype is not perfected… but it is very often possible to get selling sooner than you think. It may be a matter of selling services before physical products are ready, or selling early variants of the product at special prices in exchange for help with modifications. Equally early sales especially can be made with payment up front, with or without a discount. Since cash is what matters early on, every effort should be made to pull it in.
well done
Will
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This is a good article about ways entrepreneurs can bootstrap their businesses. Open-source, outsourcing and mash-ups are a few things credited for giving start-ups opportunities they didn’t have before. I work for Elance which helps with the outsourcing part. Many start-ups and entrepreneurs use the site to get their companies up and running by outsourcing all kinds of work and tasks to professionals on Elance.
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[…] 10 Ways To Fund Your Business: From credit cards to friends and family, check out these alternative ways to get money for your business. […]
I remembered reading this post a while back and, having just written a post on our blog explaining some lesser known government funding opportunities in the UK, thought I’d share it with your readers:
http://www.arenaflowers.com/blog/2008/06/16/top-tips-for-getting-government-funding-for-a-new-business-start-up/
Keep up the good work.