As an entrepreneur, I have found that raising capital to fund a start up company can be a daunting task but one that is necessary to venture into the world of business ownership. With perseverance and sometimes a willingness to forgo a portion of your profits, you can raise the cash that is needed in those early years. If successful, the payout reaps benefits far beyond the monetary compensation.
1. Applying for Loans or Grants. Applying for a small business loan is a commonly used method to gather start up funding for a small business. There are unconventional loans available now thanks to the Internet called peer to peer lending through sites like Prosper. They offer a low interest rate loan compared to conventional bank funding or lines of credit.
2. Seed Financing from companies like YComninator or LaunchBox which generally come from Angel investors. The pro to using seed investors is that your business venture is pitched to several investors at once. The con to this method is that these companies generally lean toward tech or digital start ups, but if your new venture is in this category this might be the method for you. If not, you might find it hard to receive funding from this method.
3. Borrowing from family and friends also referred to as Blood money. The pros to this approach is that you would be surprised how much money you can pool together amongst family and friends willing to support you in your new venture. The cons can be that loans are risky and can tamper with family relationships should the business not work out and money is lost.
4. Private Offering can turn your friends and family into part owners of your business. This may give a bigger benefit to those who are not so willing to fork out a loan to help get you started. They may need an incentive like apiece of the pie to give a chunk of cash. This method is a win, win for all involved.
5. Using your own savings or that of a partner can be tricky but this is one of the most commonly seen ways that small business start ups are funded. The risk of using your own money to fund your start up can leave you with no emergency cash on hand if your new business venture fails. The benefit to this method is your business will not be in debt to outside sources and repayment of your savings can occur over an unlimited amount of time. You will not be accountable to any outside entities or people so this upside tends to keep the financials cleaner.
The best way to seek funding with any method is with a well structured business plan and/or a prototype. Most will not consider investing or loaning with out this important piece.