So you've got your business started. The name is established, the IRS knows you exist, you've got your accounting system, website, the works. You're ready. Now how do you get the money? There are many ways to go about it, but we're talk about 5 options. Let's go!
1. Bootstrapping
This option hinges heavily on two things. One being, do you have any money? Two, what is your idea? By this I mean, if the idea is selling crochet dolls on etsy, you very likely don't need a lot of up front capital. On the flip side, if the business is junk removal - you will need some equipment that will have a hefty up front cost.
All that to say - if you've got some money that you're willing to put on the line, trust yourself and the idea and go for it. Not all debt is bad, but no debt is certainly good.
2. Credit Cards
Credit cards are a wonderful way for startups to have instant access to money when you need it. Typically, they are very easy to get, but can come with a high cost in the form of high interest rates. I love them because you don't have to justify what you're going to spend the money on, and they're perfect for those early, small-scale revolving needs.
Let's say you are starting a custom woodworking business and you need a new table saw. If the saw costs you $3,000 and your credit line is $5,000 - you get to buy it with the banks money and then you have 30, sometimes 45 days to pay it back. So if you've got a steady flow of customers coming in, but also have steady costs, credit cards may be perfect for you. Just make sure you pay them off each month! That interest will ruin you.
3. Bank Loans
A bank loan is a good way to get larger amounts of cash, but it's also more difficult to get approval for. The bank, understandably so, needs to know they're going to be paid back. So they're going to gather all the information they can, ie credit history, income history, payback history - all the history.
There are bank loans that are more advantageous than others. SBA (Small Business Administration) Loans are perfect for a new small business because they're partially guaranteed by the government, which eliminates some risk for the financial institution. They also have fewer or less stringent requirements than a traditional loan.
4. Crowdfunding
This method became very popular around 2010 when Kickstarter and GoFundMe started. It's a pretty simple idea. You as the business owner create a page for your product/business. You tell everyone what it is that you're trying to accomplish with the money - almost like a sales pitch - and then individuals can "invest" in the idea. It's popular because people can buy in for as little as $5 to some of these projects depending on the size and scope.
For bigger companies/project/ideas, they will issue "stock" as the carrot for an investment. This stock is worthless unless the company succeeds, but it allows the business cash to grow and gives the investor something to be invested in and track your company's progress..
5. Friends and Family
My least favorite of all the options but sometimes it's all you've got. For some people, asking friends or family financially is easy and some it's extremely difficult. Everyone is different but no matter, if you have an idea that you believe in and you need funding - exhaust every resource.
The good thing is these don't have to be in the form of an IOU where they're always questioning when they will get their money back. There are contracts out there designed for "friends and family loans" where you can make everything very clear. Define things like time until repayment, if there will be interest earned, when payments will begin, what happens if the company fails, etc. It can be easy - but it can be a stressful way to go about funding.
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