10 Ways to Fund or Grow Your Own Business
It’s a fact: Whether you own a business – or are thinking seriously of starting one – money to pay for even the most basic activities seems almost always limited. To most entrepreneurs, sources for their required funding are at best scarce, often non-existent; that is until they examine their options. What follows is a quick look at 10 of the most widely available sources of money to fund or grow a new or existing business:
1. Personal Savings: The emphasis here is on setting money aside in advance to finance your business. I can think of at least three people who, like smart little squirrels stashing acorns, regularly put something aside to fund their start-ups. In one case it took nine years; the others, three. The advantages: Time to fully plan, and retaining full control of your company.
2. Friends and Family: Yes, you can ask them to loan you money, but loans require repayment, even if your business fails. A better way is to incorporate your business and offer those same folks an opportunity to buy shares in your company. Each will own a small piece of it, but no repayment is required. An attorney should help with the details.
3. Bank Loans: For most new and small businesses, because they have limited assets for collateral, such loans require that the entrepreneur personally guarantee repayment – a fixed amount each month – regardless of what happens to the business.
4. Line of Credit (LOC): Different from a traditional bank loan, the entrepreneur can again be held personally liable, but money becomes available on a recurring basis. Example: A $24,000 LOC repayable at $2,000 a month. At the end of six months of such repayments, the owner of that LOC can again have access to the $12,000 he or she already repaid. The LOC’s full amount becomes due at the end of the agreed time period.
5. Crowdfunding: Supporting a variety of new and existing business ventures, crowdfunding describes the constantly expanding collective efforts of individuals who use the Internet to network and pool their money to finance ventures initiated by others.
6. Business Plan Competitions: Regardless of how hard many entrepreneurs try to avoid creating a formal written business plan, a number of universities and business organizations host such competitions. The most promising – and thorough – business plans are often connected to investors with money.
7. Angel Investors: “Angels” are affluent individuals who typically provide capital for start-ups, often in exchange for some degree of ownership. A quick search of the Internet will turn up a growing number of websites providing helpful information about angel investor groups.
8. SBA Loans: The most effective way to explore their availability is through the loan officer of your local bank or credit union. But be aware that the required documentation can be cumbersome.
9. Venture Capitalists: Known as VCs, they typically provide large dollar amounts – a half to several million – for high-tech firms, occasionally start-ups, most often expansions. Because they demand a higher rate of return, VCs are sometimes referred to as “vulture capitalists.”
10. Bootstrapping: Often the most common forms of financing, the name derives from an ancient metaphor about a man freeing himself from a swamp by pulling up on his own boot straps to lift his feet from the muck. Most often, bootstrapping involves working part-time on your dream venture while employed full-time elsewhere so you enjoy a steady income and your employer’s benefits.
To explain in detail each of these 10 ways to fund a start-up or grow an existing business would obviously fill volumes. But there should be enough information here to whet your appetite, to encourage you to research the sources of funding that are most appropriate for you and your company.