5 Ways to get funding for your Business Idea

By Ismet Balihodzic 

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One of the key questions that first-time business owners ask is how to finance a business. The task of raising money for a business is not as difficult as most people seem to think. This is especially true when you have an idea that can make you and your backers rich. There are many small business financing options, each with their own advantages and disadvantages. Here’s a brief summary of startup business financing alternatives.

  • Bootstrapping

When first getting started, many entrepreneurs use “bootstrapping,” which means financing your company by scraping together any personal funds you can find. This typically includes your savings account, credit cards, and any home equity lines you may have. Actually 68% startups come directly from the pocket of business owner.

  • Friends, Family & Fools

If your business is truly in its “idea stage” and you are just getting started, you should likely turn to these three sources: Friends, Family and Fools. The SBA does not fund ideas or start ups and for the most part neither do Angle Investors. If you have a great idea that needs some financing you are going to need to at least get a prototype built of your product or service before seeking financing from larger institutions like VCs, Angles or Banks.

  • Angel Investor

If you have a tech start-up, you’ll probably eventually need more capital to really get going to hire peopleor get office space, for example than bootstrapping will afford you. You’ll likely need to reach out to outside investors. A good place to start is angel investors, usually established business professionals with high net worths who are looking to invest in promising companies. Typically, an angel will invest anywhere from $10,000 to a few million dollars.

  • Bank Loan

For most startups, getting a traditional bank loan is a long shot. That’s because banks typically will only consider companies that have been in business for two years. What’s more, they need to see a tangible asset that can be used as collateral. The exception is a manufacturing company building or using heavy equipment. The founder should try also with Industrial banks. They are usually much more amenable to making business loans than regular banks, so be sure to check out these institutions in your area.

  • Crowdfunding

Are you looking for money in all the wrong places? Banks, angel investors and venture capitalists don’t seem too willing to put their faith in eager entrepreneurs these days Crowdfunding, put simply, means you are raising money by persuading “the crowd” to contribute to your project or business idea. In this sense, cash-strapped entrepreneurs have been using crowdfunding for a long time.

The main rule of the game: Anytime you want to raise money, your first move should be to put together a proper business plan. This business plan should include a resume of your background, your education, training, experience and any other personal qualities that might be counted as an asset to your potential success.

This business plan will have to state precisely what you’re offering the investor in return for the use of his money. Any way you choose you should be able to answer these questions about investors:

  1. How much do you want them to put in?

  2. How much would they get out?

  3. How fast would they get out?

  4. How sure they can be that they would get out?

An investor uses his money to make more money. He wants to make as much as he can, regardless of whether it’s a short term or long term deal.

Finding funding can be the hardest part of getting your business off the ground, but also the most rewarding. Once you’ve saved, gotten approved for a loan, or found other people to invest in your business, you can get back to or start your dream job!

See also:

“How to Raise Money for Your Business with Crowdfunding”  via @GrowAmerica 

“How to finance and start a business” via @BrianTracy