Finding the money to fund your new company (or extending your existing company) can be an
interesting familiarity. A good
business plan can
help you determine how much money you need to get started. Truthfully, most new
businesses are started with the owner's own cash, credit cards, friends and
family, etc. without any type of plan whatsoever. However, we've detailed some
methods for you to find the money for creation of your new company.
We've broken down the sources of finding money to 3 areas:
Small Business Administration or Bank Loans
Venture Capital or Angel Investors
The dictionary definition of bootstrapping is "To promote and
develop by use of one's own initiative and work without reliance on outside
help". Most small businesses are started with nothing more than the owner's own
money, work, and debt (usually credit cards, home equity loan, etc.). This is
also jokingly referred to as "sweat equity".
To get their venture launched, entrepreneurs have utilized many methods for
startup capital, these include but are not limited to:
- Credit Cards
- Friends and Family
- Home Equity Loans
- Personal Notes or Loans from a Bank
- Cashing in Pensions, IRA's, 401(k)'s, etc.
- Small Business Investors ( Corporations and LLC's are perfect for this
because they can sell "shares" or "interest" in the company to help fund the
startup phase. NOTE: friends and family can be investors as well. )
- Cashing in Stocks or Bonds
- Federal, State or Local Grants
2. Small Business
Administration or Bank Loans
Many small businesses are started with the help of a bank loan or a Small
Business Loan from the Small Business Administration (SBA). SBA loans are loans
from a private bank with the SBA as the "guarantor" of the loan. This means that
the SBA will absorb some of the risk on behalf of the small business. To get an
overall view of small business financing and small business loans, please visit
the SBA's site dedicated to financing your business.
Getting a loan from your bank is fairly straightforward: simply call or visit
your local bank (or a national bank such as Citibank) and ask about the
requirements for getting a small business loan. Depending on the bank, the loan
process may be fairly easy or extremely complex. To help you understand what
this process may be like and what it may require, please visit the SBA's page on
Recommended Site - BusinessFinance.com - over 4,000 sources of business loans
Recommended Book - Financing the Small Business: A Complete Guide (amazon.com)
Recommended Resource: Business.gov (The U.S. Government's
Small Business Resource site) has a page on finding Small Business Financing at
both the state and federal level.
There are basically 2 types of SBA Loans: the Basic 7(a) Loan Program which
is the most used type of loan the SBA offers and is available in amounts up to
$2 million dollars; aormation and help with applying for a Basic 7(a) loan from
the SBAnd the MicroLoan Program which specializes in loans for
small business up to $35,000 dollars.
here for inf
Click here for information and help with applying for a MicroLoan from the
Recommended Book - The SBA Loan Book by Charles H. Green (amazon.com)
|Forming a Corporation or an LLC is a great way of creating a new
business credit profile that is separate and distinct from your personal
credit profile (which may be poor). In essence, this will create a new
"person" that allows you to build up a pristine credit profile and
enables you to receive bank loans, lines of credit and credit cards that
you would not be able to acquire using your personal credit profile.
3. Venture Capital
or Angel Investors
Some business ideas are so good and have so much potential that obtaining
venture capital may be the way to go. In this process, the entrepreneur submits
his business plan to a venture capital firm (or more than likely, knows
someone who knows a venture capitalist). The venture capital firm will review
the business plan and, if interested, offer to provide startup money (usually
well over $100,000) in exchange for an equity stake in the company.
Anyone familiar with the "dot-com boom" of the late 90's knows that this can
be a long and difficult process but the rewards can be astronomical. Companies
like Yahoo! and Amazon.com were funded in this manner (and their founders are
worth billions), as well as many other companies you are familiar with: FedEx,
This is not to say that you need venture capital to become a great company.
Most of the large businesses you are aware of started as a small business with
little or no help, then obtained venture funding or "went public" after
they had grown relatively successful.
Another source is what is called the "angel investor". This is usually a
private investor who has considerable amounts of money to invest in new business
ventures, the proverbial "rich uncle". Most people don't have access to these
types of investors but we've listed some resources below.