It is no secret that this economy has created a credit crunch. Banks and finance companies have tightened their rules. Rising loan defaults have generated higher fees, interest rates and tougher standards. However, in order to begin a business, you must have funds. The first step in fundraising for your business will be writing a good business plan. Check and, if necessary, repair your credit. Then you can start raising funds.
Fund your business by yourself.
Use personal savings, home equity lines of credit, or retirement fund loans. This allows you to retain full control over your business. However, you risk loss of your home or personal savings if your business fails.
Fund your business through friends or relatives.
Friends and relatives may be willing to loan you money for your business or invest for a stake in future profits. This may be easier than some of the other methods. However, doing business with friends risks losing the friendship.
Fund your business through government grants.
Although grants can be a great source of funding, you must meet the criteria for each. Most exist to provide affordable housing, small businesses in depressed locations, minority owned businesses, health care, transportation, education, and regional development. Often these funds do not have to be repaid. However, the grant can control how the money is used in your company.
Fund your business through bank or finance company loans.
Present a well-written business plan and specify why you need the funds. It is better to approach the bank for anticipated needs, rather than appear desperate. However, beware of extra fees for legal work, appraisals and documentation fees. Interest rate is also a consideration.
Fund your business through an angel.
In this economy, angel investors are cutting back and looking very hard at where their funds are going. Present a good business plan and knowledge of your market. Also research the investor and, before signing anything, know how much the angel will be involved in day-to-day business dealings. Check backgrounds to know if he is legitimate. Remember an angel will have a financial stake in the company and may also have some control.
Fund your business through venture capital.
Small Business Investment Corporations (SBIC) are federally funded venture capital firms, which loan money to small businesses. This is an especially useful program for a business with limited bank credit. In order to interest them, you need to show that your product will be successful in a down economy. Venture capital may give the investors a stake in your company, but usually does not have to be repaid. SBIC sometimes provides funds in the way of venture debt. These are loans that must be repaid. The advantage is that owners retain control of the company.
The economy is down right now but some money is still available. In order to fund your business, analyze your market, check your credit rating and create a well-written business plan. Then consider the advantages and disadvantages of each source as you begin your fundraising.