Finding capital for your new business is a requirement for every start up, even if that
first loan is nothing more than a check that you write from your own personal bank
account. But there are many other choices, beyond a personal infusion of start up
capital. You should thoroughly research all of these options before you decide how you
will raise the capital that will finance your small business start up.
Personal Savings
Most new businesses rely on personal savings and personal credit lines for their start up
capital. Although it may seem easiest to launch a business using credit cards, other
options should be explored first. Often, a small bank loan will provide a similar, or
lower, interest rate, with better repayment terms. And timely repayment of a bank loan
can be the first step to establishing a prompt-payment history for your new company.
Family Members and Friends
Finding capital often leads to friends and family members who are willing to provide
interest-free start up loans for new companies. To protect your important social ties to
these individuals, be sure to clearly explain the benefits and risks of your new venture,
and put the loan in writing, so that your friend or family member will be legally
affirmed as a primary creditor. If your business does not succeed, this status will help
your friend or family member recoup part of their losses in any apportionment of
business assets to long-standing creditors.
Credit Unions and Banks
A credit union or bank will issue a small business start up loan if you can convince
them that your business proposal is a good risk. A fully developed, written business
plan is the best way to legitimize your business proposal. And it is also the best way for
you to determine, for yourself, just how viable your idea is, once it is spelled out in
steps that define how the business will operate, what market it will thrive in, and how it
will grow. At the start, credit unions and banks may require that you secure your
business credit line with personal assets.
Venture Capital Firms
A venture capital firm is generally a group of investors who have joined together to
pool the risk of investing in new companies. The venture capital firm will require that
you have an in-depth business plan that can be presented and reviewed. Venture capital
investment is made in exchange for equity in the company - either partial or majority
ownership, and often includes input on company officers, seats on the board, and other
means of direct input to the running of the company. If you are able to convince a
venture capital firm to provide the small business start up loan you need to open your
doors, in that process of finding capital by proving yourself to the seasoned members of
the venture capital firm, you will learn lessons that will put you well on the path to
building a successful business.
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