Finding the capital you need to finance your business can be a confusing
and complicated process. Many great ideas stumble at this stage
of business building.
Yet, moving through this stage breathes life into your business
- giving it forward momentum like a roller coaster barreling down
the first big hill. Finding money is just a matter of being informed
and choosing the right path for money to enter the business.
There are several options available to you when searching for financing.
Some methods of raising funds are less difficult than others, but
all require some planning. Basic planning requires that you know
the answer to these three questions:
What will you use the money for?
You must know exactly where the money will be used. You must
be specific, as generalities are recipes for disaster. Carefully
identify the areas where money should flow into your business.
How much money do you need?
You should calculate your needs to carry you through initial
startup and into your first several months of operation. It's
necessary to have a realistic picture of your needs. Many businesses
fail because the money runs out before the business reaches
profitability.
How will you pay back the money?
You must have adequate cash flow from your business to repay
the money to your source. Before asking for funds, make sure
your fiscal projections and business integrity are soundly argued
in a good business plan. An integral part of a good business
plan are financial statements for your business. You need to
show sufficient cash flow in your business for repayment. You
do this with information as found in an income statement, a
balance sheet, and a projected cash flow statement.
SOURCES OF MONEY
Here are some options for funding your small business:
==> Credit Cards
One form of personal debt you should avoid is cash advances on your
credit card. It's very tempting and very easy to get cash this way.
If you do this you should pray. Pray with vigor. Then ask for forgiveness.
This option is very expensive and extremely risky. Credit cards
should only be used for short-term expenses, and not as a means
to entirely fund a start-up business.
==> Friends and Family
Borrowing from your friends and family, especially the rich ones,
is a good way for new businesses to get money. It's not uncommon
for relatives to make low interest or no interest loans to family
members. Just make sure all parties are aware of any risks. You
don't want to alienate your family if the business falls on hard
times and you have trouble repaying the loan.
==> Personal Savings
You can use your personal savings or assets that can be converted
to cash. If your savings are already low, put off that vacation,
drive your old car a bit longer, avoid large purchases -- be thrifty
in all areas and you can save faster for your business. Keep in
mind that most lenders won't finance 100 percent of your business,
so you'll need to invest some money yourself.
==> Line of Credit
If you have good credit, you may be able secure a line of credit
from your bank. This can be handy in providing you with a source
of working capital in the opening round of your business.
==> Bank Loan
Using collateral, such as the equity in your home, you can approach
your bank for a loan against your business. This may or may not
be an option for you, since some banks prefer to separate personal
equity from business debt.
==> Venture Capital
People with lots of money love to make lots more money. Your job
is to convince venture capital providers that you and your business
can help them make lots more money.
You must be able to show you've got a real winner. You must do it
without fluff or a "come on, dream with me" embellishment.
Therefore, you need a business plan. A good one that shows you've
done your homework and know the "lay of the land."
Venture capital providers want to be sure their investment is sound.
They generally do this by taking ownership over a pretty big part
of the company, and often require control of major portions of the
business. This is so they can look after their investment.
Do they mess around with the little guy? On the whole, they don't
want to fool around with little investments and they are bully on
companies that have high-growth potential. Gotta think big with
these guys!
A few sites that help businesses and capital providers meet are
vCapital.com, BusinessFinance.com, and vFinance.com.
==> Angels
An angel, or private investor, is a person looking for good investment
vehicles. This person could be your next door neighbor, your dentist,
or a local business owner. Overall, angels are not loan-makers,
they are investors. As such, the degree of control and terms under
which you receive seed money for your business will depend on the
arrangement brokered between you and your angel.
The key to finding an angel in your area is networking. While you
may not have an angel in your personal pool of contacts, by networking
with others you can create a word of mouth campaign that reaches
the ears of private investors.
Moving outside of your local area, you can begin a sweeping search
for private investors at BusinessFinance.com. They maintain a list
of thousands of potential investors.
==> SBA Microloans
The Small Business Administration may be helpful in connecting you
with a Microloan. These loans are administered by non-profit organizations
that want to foster economic development in your area. Contact your
regional SBA office for information on this loan program You can
find your local office using this online locator: http://www.sba.gov/regions/states.html
==> Small Business Investment Companies
The SBA or your local Chamber of Commerce may be aware of Small
Business Investment Corporations operating in your area. These organizations
are interested in reviving depressed portions of your community,
bringing employment to places with high unemployment, or even helping
certain minority groups. They will work with new businesses if you
meet the criteria they expect. You can visit the American Economic
Development Council for a list of organizations in your area: http://www.aedc.org/
==> Business Incubators
Business Incubators help build new businesses. They can provide
help in all phases of start-up, including funding. Investigate whether
or not an incubator exists in your area with the SBA, Chamber of
Commerce, local universities, or your local municipality.
==> Your Future Customers
Your future customers may be a source of money. This is a less conventional
method, and your timing must be right to coordinate this type of
deal. You simply take advance orders for your product and collect
at the time of the order. If you take enough orders, you can search
for a lending institution which makes loans against accounts receivable.
In the final analysis, the name of the game is perseverance. Get
your name and idea out there in the real world. Start talking to
people about your intent and become a player. Have your business
plan ready, be aggressive, and you can get the money you need.
---
Brett Krkosska provides 'how-to' advice on family and home-based
work issues. Get start-up guidance, business ideas and inspiration
at: http://homebiztools.com
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Startups: Finding Capital To Start a Business 
