It’s a rare business that doesn’t need any startup capital. Depending on the type of business, the funding requirement can be significant. A reader recently commented on one of my posts, bemoaning the difficulty of obtaining financing for a young business, especially when he doesn’t have much collateral.
Fortune Small Business recently published 7 Great Ways to Finance a Startup. They point out that banks don’t loan to businesses that are less than two years old unless the owners have some significant collateral. So what else can you do? Here are the seven ways, with brief comments from me. I recommend you read the article in full for FSB’s take on these methods.
- Bootstrap – This means dipping into your own reserves and starting small, building slowly on your initial revenues.
- Friends and Family – One of the more likely sources of funds. But treat them as investors, because they will expect a return on their investment. Write a basic business plan so you can show them what you will do to be successful.
- Banks – A long shot, as FSB pointed out.
- Grants – Certain categories of business can sometimes get grants, especially woman or minority-owned ones.
- Angels – You’ll have to wait until you have established a management team and started operations before angel investors will talk to you. But don’t let that discourage you. Engage them early to see if you are on the right track.
- Venture Capital – This is an even longer shot than banks when you are just starting out. But again, see if you can talk to one or two to validate your business concept. You can always go back later when you’ve established some momentum.
- Customers and Suppliers – This one hadn’t occurred to me. Of course, they will want you to make some kind of commitment to them to supply them or buy from them for a period of time.
It wouldn’t hurt to try to tap into more than one of these sources. If someone has already invested in you, that is viewed favorably by a second investor.
A tip of the hat to Rich at Business Opportunities Weblog for spotting the FSB story.