Last Update: June 19, 2015
Every business is different and has its own specific cash needs at different stages of development; therefore there is no generic method for estimating your startup costs. Some businesses can be started on a shoestring budget, while others may require considerable investment in inventory or equipment.
Key Financing Methods
Here’s a look at the most prevalent financing methods available today:
- Debt Financing
- Friends & Family
- Angel Investors
- Venture Capitalists
- Peer-to-Peer Lending
Look no further than yourself to find the funding you need—perhaps using your savings, your initial revenues, credit cards, equity pulled from your home, etc.
Debt financing requires that you qualify for a traditional bank loan or that you find a bank that can provide you a loan with a SBA guaranty. Before landing a loan, you need to understand how to maximize your odds for success in acquiring it. The lending process is inherently a tough one, but it’s also a system that has been the catalyst of success for many small businesses.
Grants are special programs designed to fuel the innovative fires of small businesses, and typically target specific groups or types of businesses, such as technology businesses, veteran-owned businesses, women-owned businesses and minority-owned businesses.
Friends and Family
This is a straight forward “I believe in you” seed fund. This is cash raised from those that love you and want to see you succeed; ultimately they’re interested in investing in your future and reaping the benefit of your possible success.
Angel investors are individuals who invest in companies at an early stage in exchange for equity and the chance to help guide the company. In contrast, venture capitalists invest as a profession and generally on behalf of other investors.
Venture capitalists (VC’s) are individuals or companies with large amounts of capital to invest and expect higher returns. Use venture capitalists if you already have a great track record in your field or as an entrepreneur, and if you have a business concept that will require a lot of money and anticipates a rapid growth curve.
Individuals, some of them with little or no collateral, seek loans from ordinary people looking to lend. Lenders compete with each other to make loans, often resulting in lower rates for borrowers — averaging 10% to 16% — than are available on unsecured bank loans. Top P2P lenders include: Prosper, Kiva and LendingClub.
Fund your next project or venture by raising money from a large number of people via the Internet. Crowdfunding can fuel your next dream projects. Platforms like IndieGogo, Kickstarter and GoFundMe, make it possible.
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