The tricks to finding capital, say some entrepreneurs, is getting it from the right sources and in the right sequence as a business grows and evolves. This means that when searching for funding every available avenue should be explored. Learn from every approach.
Following, in alphabetical order, are the most common examples of where money can be obtained. Ask around and investigate to determine how each option in your region or country can be maximized:
Banks
Winning over a bank is one of the highest hurdles a start-up business face. Banks are necessary to small business operators for two reasons, (1) they’re a safe place to store money, and, (2) they can be a source of finance and other services. Unfortunately, most banks enjoy loaning money to people and businesses that don’t need it. This is because every bank wants to ensure that it gets its money back.
Corporate Venturing
Some companies loan money to entrepreneurs in the hopes of establishing a working relationship with them. This is called corporate venturing. Needless to say, the skill or product of the entrepreneur must be of benefit to the company being asked and be backed by a solid business plan. The company to which the idea is being pitched may also seek some type of equity share (ownership) agreement.
Crowdfunding
The practice of obtaining funds by publically asking for small donations has been practiced for centuries.
Equipment Loans
Expensive equipment (i.e.: machinery, display cases, tools, etc…) can sometimes be purchased with an extended, low-interest loan from the company that produces or sells the equipment. In return, the entrepreneur may be asked to sell or advertise the company’s products in his or her business.
Family and Friends
Entrepreneurs that can prove (or have shown) that they’re trustworthy and reliable – and have put together a viable business plan – may be able to find family members or friends who are willing to cough up the cash needed to start a business.
Government Help
Local, state, and federal governments sometimes offer financial resources for small businesses if and when certain requirements are met.
Grants
Grants provide money that does not have to be paid back. Universities, professional organizations, governments, and trade associations are typical grant sources (including the European Union – if the business is in Europe). The unemployed, pensioners, young entrepreneurs, artists, and other out-of the-mainstream groups are usually the most eligible to receive a grant if they qualify – as are competent people who trying to set up a business in an underdeveloped area.
Issuing Shares
The issuing of shares is a finance option that is only available to businesses that are incorporated. The advantage of issuing shares is that the people that buy them don’t have to be paid back. The disadvantage is that the people who buy shares are part owners of the business and as such they can hold the entrepreneur accountable for whatever he or she does (or doesn’t do).
Soft Loans
Loans are declared ‘soft’ when they do not require security or collateral, their payback schedule is long, and their due dates are extendable. That being said, every penny that is borrowed must be paid back, with interest, just like a regular loan. Small Business Development Centers, local governments, business-oriented banks, corporations, business trusts, and other business-friendly associations are the best places to look for soft loans.
Trade Credit
Some suppliers do not require payment for the merchandise they sell for up to 30 days or longer – so that the purchaser has time to sell the merchandise before paying for it. If a small business has a solid customer base and it has little doubt that it can shift merchandise easily, this can be a creative way to lower inventory costs and begin trading with less money than was originally envisioned.
Mixing Up the Options
If the sources mentioned above aren’t enough on their own, consider mixing them up. Maybe a local bank won’t lend $100,000 to start a business, but it may consider $25,000. Additional funds can then be obtained from family and friends, the selling off of personal assets, and so on. Still more cash can come from grants or through trade credits or equipment loans. Don’t be afraid to be creative.