When it comes to starting a business, a business owner must do much more than simply create a good business plan. In addition, he or she must go about finding the funds to finance the business until it becomes self-sustaining. Many businesses are initially funded by their owner’s savings accounts; however, for those without the proper funds, thankfully, there are other ways to go about obtaining the necessary financing. Let’s take a closer look at the ways a business owner can fund his or her small business.
1. Capital from the Owner
Finding adequate funding to start a business can be somewhat difficult in today’s economy. Keeping this in mind, many small business owners save up the necessary funds instead of seeking alternative monetary resources. One advantage gained when funding one’s own business is that the owner has complete control of the business because there are no investors. On the downside, if the business goes under, the owner’s invested funds are lost as well.
2. Credit Cards
Many times, small business owners will fund their business operations through credit cards. Solving short-term cash flow needs can be accomplished through credit cards; however, the cards should not be viewed as a long-term solution.
3. Angel Investors
Some small business owners are fortunate enough to secure funds through angel investors. These types of investors usually have a strong say-so in the direction of a business, including its management processes as well as in the approval of any other investors. When a small business owner accepts funds through angel investors, it is important for him or her to understand that full control of the company is not guaranteed. Instead, the control is split between the investors and the owner. Angel investors tend to be very business-savvy, meaning they only invest in businesses that they believe have a high chance of being successful.
4. Bank Loans
Obtaining a bank loan to fund a small business can be somewhat difficult. Most small business owners will have to personally guarantee the loan, meaning they will have to provide collateral in case the borrowed funds cannot be repaid. For those business owners who don’t have the funds to guarantee the entire loan, it can be advantageous to obtain a small business loan through the Small Business Administration. Most of the time, this administration will guarantee 75 percent of the borrowed funds, meaning the business owner only has to personally guarantee the remaining 25 percent.
5. Independent Investments
Funds to start a business can sometimes be found through independent investors such as from friends and family members. Many times, in return for the investments, these independent investors will want part ownership in the company, including some management control. Many small business owners make the mistake of not drafting formal contracts with friends and family members who provide investments; this can lead to stressful and burdensome situations. When funds are borrowed and/or obtained through friends and family members, the matter should always be treated professionally.