Financing a Startup
Description: According to Entrepreneur.com, the difference between a startup that succeeds and one that fails largely comes down to money. No matter how great the idea or how high the customer demand, new businesses stumble when they don‘t get enough financial support.
Financing may be your greatest source of stress as you start your business, but the chase for dollars isn‘t always the ordeal some entrepreneurs expect. The simplicity of the process might even surprise you. Kym A. Nelson, 37, applied for a business loan from National City Corp. over the phone. “It was easy,” says Nelson, who started The Furry Beastro, a dog bakery, grooming and pet-accessories shop in Chicago, in 2003.
Nelson was lucky. Her management experience at MTV Networks, stellar credit score and debt-free lifestyle helped win over the lending officer, but most new businesses can‘t match that level of creditworthiness. Professional investors, such as VCs and angels, are also mostly out of reach. Many entrepreneurs rely instead on family and friends, personal savings, and credit cards with hefty credit lines as their greatest sources of early funding. Between the two ends of the spectrum lie less conventional possibilities, including economic development corporations, business-plan contests, and public and private microlenders.
Possible sources of funding:
- potential customers
- your own pocket: a savings account, a home equity loan, stocks and bonds, or money from the sale of high-value possessions. Even a whole life insurance policy with a high cash value can be a revenue source, as some insurers will lend up to 90 percent of the policy‘s cash value. Next comes credit cards, a high-priced source of money best reserved for short-term spending.
- Family and friends round out your options for easily accessible funding.
- The Angel Capital Association lists angel investor groups with links to websites where entrepreneurs can review funding requirements and submit business plans.
- Your bank
- Expanding your network – contact business owners in similar fields to gauge the market for your idea, preferably companies big enough not to feel a competitive threat.
- Other sources for reaching out to business owners are trade association meetings, local chambers of commerce, rotary clubs, new entrepreneur forums, business breakfasts and business-school lectures open to the public.
- Small Business Development Center – Community Express loan
- SBA Express lending program
- Government loans and grants
- business-plan competitions often sponsored by municipal economic development agencies and universities.
Source: Entrepreneur.com
Date Last Revisited: 3/11/07
