Sources of Funding
Are you wondering where you can get money for starting a business? This is certainly an important factor to consider when deciding whether or not entrepreneurship is feasible for you. There are several ways to finance the start up costs associated with launching a new business venture.
Many people utilize their personal savings to start a company. It isn't uncommon for new business owners to dip into their savings accounts, money market accounts, mutual funds, or retirement savings accounts to obtain the money they need to get started. If you're going to tap into your IRA or 401(k), be sure that you understand the early withdrawal penalties (if applicable to you) and tax implications associated with doing so.
Small Business Loan
If you're interested in seeking loan funding to get money for starting a business, find out which banks in your community are preferred Small Business Administration (SBA) lenders. Keep in mind that the process of applying for this type of funding is very involved. Approval is not guaranteed, and is based on creditworthiness, what the money is needed for, soundness of your business plan, and other factors. You'll have to have collateral, and funds won't likely cover the entire cost of your enterprise.
Entrepreneurs who own their own homes often utilize a second mortgage or home equity line of credit (HELOC) to get the funding necessary to start a new business. In many cases, these types of loans have a lower interest rate than SBA loans or other types of credit. Additionally, many people enjoy tax deduction advantages associated with taking out an equity line of credit rather than a business or personal loan.
Another way to finance the startup of a new business is with equity funding. Rather than borrowing money, which is debt funding, equity funding involves selling an ownership interest in the business in exchange for partial ownership. If you're interested in pursuing this type of funding, you'll need to issue shares of stock in your company. Be sure to consult with an attorney who specializes in small business law before proceeding, so you can be certain that everything you are doing is in compliance with all applicable regulations.
Angel Investor Funding
There are companies, individuals, and groups of investors who specialize in funding start up business enterprises. They are often referred to as venture capitalists, and they pick and choose the ventures they invest in based on the potential to realize a return. In some cases they'll fund start-ups that traditional banks view as too risky. To get this type of funding, you're going to need diligence and a solid business plan. Often, SCORE (Senior Corps of Retired Executives) counselors are a great resource for identifying potential angel investors.
Free Money Myth
Don't buy in to the myth that there are numerous sources of "free money" to get a business started. Grants do exist, but tend to be reserved for nonprofit organizations, and even starting a charitable organization requires an initial investment. If you want to start a business, you'll be responsible for investing your own money, borrowing money, or taking on investors. There's an element of financial risk with any business, but there's also the possibility of great reward. To get started, check out Ideas for New Businesses to find a new idea for to make your business dreams come true.