One of the biggest problems facing a business when it’s first starting out is where to get sufficient funding to carry it through till it reaches the point where it’s actually generating some income.
In most cases the business owner commits his or her life to the business, friends, relatives and immediate family lend money and the business is off to a shaky start … hopefully with enough cash to last them for the first year. But where do those business owners go from there and are there other places that businesses can obtain funding other than those sources that I mentioned a moment ago?
Angel investors
Very few investors outside of your own circle of friends and family will invest in a new business before it’s even opened its doors. However angel investors are people who are prepared to lend money to take a business from the self-funded start-up situation up to the point where the venture capitalists become interested.
You can expect to pay high interest rates for money that comes from an angel investor and you can also expect a high rejection rate. The average Angel investor only considers three out of every 10 business propositions that are pitched to them and if they do invest then the amount will be relatively small.
Bank loans
This one is really a no-brainer … you know where you can apply for a bank loan and you know your chance of getting a bank loan in the current financial situation. You also know that the interest rates are going to be high so you’ll have to be able to generate income to cover the repayments each month.
Credit cards
I’ve included this one not because it’s something I would suggest but because many small business people try to get their business off the ground by relying on their credit cards. I know some people who have survived that way but you run some serious risks if this is the way you want to finance your business because those monthly payments can kill your business stone dead in no time at all.
Government grants
Yep, I’m sure you’ve seen this one too … I regularly get large chunks of spam email offering me government grants and I’m sure you do too. Now of course those emails offering government grants are bogus but there are grants made available for some businesses that are starting up.
To find out if your business is eligible for a government grant forget those emails … just contact the relevant department at the state level and they’ll be able to give you the true facts.
If you can’t start and keep your business running until it begins to make a profit from your own resources then there are options for you just as I’ve mentioned here. However, when you head for those options you have to realize that they come at a cost and it may be a cost that your fledgling business can’t bear in the long term so be prudent when it comes to making a choice about funding.
Susan Reid of Discovering Your Inner Samurai said:
Yes, indeed. This is great information, too! Having enough money to start up and sustain until profit is made is sound advice.
June 7th, 2009 at 10:25 am
dwie said:
Thanks for visiting at my blog!
Your blog nice!
June 7th, 2009 at 6:16 pm