How To Secure Funding For Your Startup
So you have a great idea for a small business. You’ve done the research, developed a strong business plan, and now all you need is money to get up and running. Raising startup capital is often the decisive factor for success; how much money you get is just as important as how you get it.
Capital costs are one time expenses like purchasing a building or the equipment you’ll need to run your business. For example, if you’re opening a restaurant, things like tables, chairs, lighting fixtures, dishes, ovens, dishwashers, sinks, and etc. would be capital costs. Operating costs are the recurring expenses that you’ll need to pay to keep your business running. Things like the electric and heating bills, employee paychecks, and advertisements in your local newspaper fall into this category. As a rule of thumb according to ProfitGuide.com, you’ll need to raise capital costs, plus six months’ operating costs, plus 10% contingency money to get started.
There are many different ways to go about raising money to fund your startup. Many investors use a variety of methods to obtain the financing needed to get their company started. Some of the most common financing options include:
Personal Funds: Many entrepreneurs look to their own bank accounts, lines of credit, home equity, or other sources of income to help fund their startup. While this can be a good idea, it’s important to never invest more in your business than you can afford to lose. For example, if you take a line of credit out on your house and your business fails, you don’t want to end up in a position where you lose your home. One of the better ideas is to try to keep your job, or have a spouse earning an income while you’re starting out, so you still have money coming in while you’re getting your business up and running.
Loans from Family and Friends: When trying to secure funding for your startup, family and friends may offer to help you out with a loan. While their intentions are fantastic, this is one of the easiest ways to ruin a relationship with a loved one. If you’re not able to pay their money back fast enough, or at all, your relationship could go south. And fast. Although this may be one of the easiest ways to secure funding, it is probably the most risky in the long run.
Investors: Likely the best way to fund your business is to find investors with deep pockets. Of course this is also the most challenging method as not only do you have to find these people, you also need to prove to them that your startup will a good investment. Your pitch will need to include business plans, marketing plans, product samples, profit projections, market research, and reasons why your company will be different from its competitors.
Bank Loans: The process of obtaining this type of loan is much more competitive than it was in the past, but you still may be able to get this type of financing if you’re able to build a strong business case and impress the bank. Bank financing, such as SBA loans, can be a great option as they often include lower downpayments and longer repayment terms than conventional loans, helping you to have more available cash now, when you need it to get your business up and running.
Securing financing for your startup is not an easy process. Do your best not to become discouraged if it takes awhile. Keep trying and eventually you’ll find a way to get the funding needed to turn your dream of running a small business into reality.
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