Business Startup - Business News - Business Loans

How to Fund a Start-Up

Posted by Internet Guru
October 12, 2009

Now that you’ve calculated how much you need (see “How to Calculate Start-Up Costs”, next comes the tricky part: getting your hands on the cash. Keep in mind, lenders such as traditional banks don’t find start-up ventures with minimal cash flow and unproven track records to be attractive clients.

Here are the top sources of funding for most small-business owners:

1. Personal Savings

Your first financial resource for starting a business will always be your personal stash. Exactly how much you should dig into your own pocket can depend on your life stage. A thirty-year-old single person who’s built up a sizable savings is in a different situation than a forty-year-old parent who’s the sole breadwinner for a family. There are, however, a few rules of thumb. One is to not use all of your savings. Keep a good chunk of money in your savings or money market account not only for personal needs but also as a reserve for unplanned expenses that might arise in the first year of your business. Another rule of thumb: don’t be tempted by retirement savings.

2. Family and Friends

There’s a reason why cash from family and friends is often called “love money”: usually no one else will fund

a newbie entrepreneur’s dreams. Babson College has found that two-thirds of the average $65,000 needed to launch a business comes from the entrepreneur’s savings, while the balance comes from informal investors— most typically, family members and friends. Make sure the people putting up the money are fully aware that they might lose it all, advises Babson professor William Bygrave. It’s best if the money is a gift, but you can also structure the transaction as a loan or, more rarely, give away an ownership stake.

3. Credit Cards

It’s tempting to use plastic to fund your start-up. And many entrepreneurs do, particularly when other options are so limited. Research from the SBA found that the number of small businesses carrying debt rose 25 percent in 2005 as a result of credit cards. But it’s important to understand the risks before racking up too much credit card debt. A good word to keep in mind is easy— it’s easy to get the money, but it’s also easy to get in over your head.

cash

source: online.wsj

Featured News, Small Business

If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.

Comments

No comments yet.

Leave a comment

(required)

(required)