Authored by Casey Quinn in Finance, Small Business
Published on 01-30-2009
Great business plans require capital to see them transform from idea to reality. The process of finding this capital often intimates many who want to start their own business but do not have the means without finding additional support from investors. Acquiring financing should not deter anyone to start their own new business. In fact, to start your business with only your own capital is quite a risk. If you are able to split out your capital needed to get started from a few sources (or at least not completely out of pocket), it is less of a risk on you the entrepreneur, in case the business does not go successfully. Here are three easy ways you should try and get funding for a new business.
The first avenue for you to get your capital is to look for investors. Venture capital investors exist to provide companies start up money to get their feet off of the ground. Venture capitalists are not looking for a long term investment, but a quick three to five year turnaround from their initial investment to cashing out of your business. The focuses of venture capitalists are high growth industries where they expect to make a quick profit and then get out. This arrangement tends to work for both parties in that they get a return on their money and you received the capital to run your business. The only negative related to this option is the involvement of the investor. If they plan to be involved with the decision making of the company, it could limit your power as the entrepreneur when it comes to the direction you want to take.
The second avenue to receive the needed investment to get your company off of the ground is to apply for a commercial loan. Commercial loans make for a great capital source as it comes with the money you need at a reasonable rate. While venture capitalists may want to have a say in how the company is run, the lender of a commercial loan is completely hands off. This allows the entrepreneur the most freedom of all the options. Fees and repayment of the loan can eat into the month to month income and therefore require the business to become profitable in a shorter period of time in order to stay afloat.
A third way to finance your new business is through the use of credit cards. Most credit cards offer both a reasonably large line of credit that can be used to purchase your start up needs and they also offer cash advances if you require it. Unlike the first two options, this option should only be used as a very short term financing method. The rate on the repayment is high, typically running one to three percent greater than that of a commercial loan. It does however allow you to have money at your finger tips when you need it. You also retain full control of your company’s direction. The repayment monthly is generally low which is good but again you are paying higher interest so in the long run the investment cost you more to repay.