It can be frustrating when you have an idea for a great new business, but can’t get started because you don’t have the money. Here are some ideas on ways to raise money to start a new business.
The simple truth is that in many cases, it “takes money to make money” and this is especially true if you want to start your own business.
After you decide to try it, your first course of action is to find the money that will let you get started.
Rather than letting the lack of funds stop your new business before it starts, you should look around and do some research to see what options are available to you.
Review Your Personal Financial Holdings
Depending on the your personal situation and the nature of the business you want to start, your personal savings may be able to help you get started.
Start-ups that don’t require a substantial capital investment can be funded from your savings account. You may also want to consider using your personal assets as collateral to get a loan for your new start up.
You can also consider selling items of value to start your own business if you have an extra car, collection, etc.
Any stocks and bonds or life insurance policies can also be considered.
Borrowing for Your Business
Borrowing money from friends and families can be the best financial lifeline for young entrepreneurs. This is one of the most convenient options because you can cooperate to set up repayment options that work for both of you instead of being restricted to the options offered by outside parties.
If you decide to approach your friends & family to help with the costs involved to start your own business, you should treat it like a business arrangement. Make sure to make all the payments as you agreed upon. If you take advantage of the relationship you have with the lender, your personal relationship is likely to suffer.
Another option is to approach your friends and family looking for an investment instead of a loan. Your repayment arrangement can be specific to a percentage of the profits, etc. If you set up this type of an arrangement, make sure they understand that a profit is NOT guaranteed.
Check With the Banks
Banks remain the best choice for people seeking to raise money to start a new business.
However, it can be difficult to obtain this type of funding. Most banks will have additional requirements you must meet in order to be considered (like having half of the necessary capital already funded).
Prior to approaching a bank for funding, you must prepare a comprehensive business plan. This should include details of the projected cash-flow as well as information on how they will manage the repayment.
Finding Angel Investors
Angel investors can be described as people who have considerable financial resources who also have the knack of identifying potentially successful business ideas and funding them. By providing the capital to let you start your own business, they gain a pre-determined percentage of the equity of your company.
These people are mostly successful professionals known to the entrepreneur, so they may be more willing to invest in you than a stranger. Their professional experience and market exposure make them sound advisers. In many cases, these people get a reputation as being open to investing in new companies and you can hear about them by asking around.
To court an angel investor, you must have a detailed understanding of your business because you will need to convince your potential investor that you have a firm grasp of the concept as well as the details.
You should have a business plan prepared for them to review as well.
Using Venture Capitalists
Venture capitalists differ from angel investors because it is their business to identify the right start-up businesses to invest in.
These investors have access to large quantities of capital and they are most interested in business start-ups that have great growth and short-term profit making potential.
These venture capitalists will also want a larger stake in your company since they will be investing a larger sum of money to help you get your business set up.
Development Commissions and Business Investment Companies
Business Development Commissions and Small Business Investment Companies work in a very similar manner. They basically identify new small business ideas that they consider to have good potential and then lend money to those entrepreneurs.
You will repay the agreed upon amount of the loan, and will also probably have to give up a small stake in your business.
Alternative Funding Options to Start a New Business
Other options available if you need capital to start a new business include the following:
- Use a silent partner
- Mergers with already established business in the same industry
- Using money brokers