You have a great business idea, you want to take the plunge and become an entrepreneur, be you’re own boss. You have grand dreams of building an empire. Living the dream. Driving the Ferrari to the beach from your home-office beach mansion…
Hey, I’m not here to dampen anyone’s spirits. I wish you all the best and seriously hope you accomplish what you set out to accomplish. The one problem is that a new business needs some capital to start, to create new things and ideas, to grow past the infancy stage.
Basically we, as business owner’s, are the ones who are tasked with keeping the business afloat (funded) until the business can generate enough money to cover its costs.
So where can we find capital?
Unfortunately, the places that we first think of when we think of borrowing or getting an investment for our business, like banks, private investors, investment bankers and venture capitalists usually do not want to do business with a home-based start-up company.
Banks won’t take the risk unless you personally guarantee the loan. Now should you personal guarantee a loan for your small business?
I would urge you to think about this before you go and sign (in blood) on the dotted line. Unfortunately, no matter how excited and enthusiastic you are about your new venture, the odds of your business succeeding over a five-year period are stacked against you (at least statistically, but that’s why you read my website? right?)
So the last thing I’d like to see happen to you is getting saddled with personal debt that you’ll still be responsible for even if your business does fail. People have lost their homes because of this type of thing.
So, this would be a LAST RESORT.
Venture Capitalists / Private Investors (Sometimes called “Angel” Investors / Investment Bankers
Usually, venture capitalist and private investors won’t make the investment on an unknown venture, especially a one or two person home business start-up. Even if you found a Venture Capitalist “VC” to invest in you you’d have to abide by their rules and probably give up a percent of your business (think: the show Shark Tank). That being said you can gain from their experiences and contacts and utilize their resources. So this is something to consider and it will be different for everyone.
Some people would hate to have report to and abide by the rules of a “VC” (like reporting to someone at a job) and some people will think of it like a great resource to tap into. Every person and situation is different.
So where do I look for capital if the peeps with da money won’t help me…
Here’s my list of resources you should look to tap for cash for your start-up. I’ve listed them from the last to the first way I’d fund my new venture, but we’re all different and have different circumstances so you can order them which ever way works best for you.
Borrowing money from family members to start-up a new business venture seems like a good idea. You probably won’t get raped on interest charges and they probably will leave you alone to run your business (unlike banks and VC’s).
The problem I’ve found with borrowing from family members is just that, their family. It can get a little awkward around the table during the holidays. (instead of being a friendly family gathering, you are now a borrower and they’re the lender) it can really change the family dynamics.
Remember, friends and family members we actually see, unlike a bank where we are just account numbers to them. On the outside chance your business has problems making a profit and you have problems paying your friends and family, it’ll be that much more uncomfortable when you see them.
Remember, whether you like or not, family is family for life.
After putting together your business plan, your break even analysis and you’ve given ample thought about what challenges lie ahead. I’d use what ever savings I’ve accumulated (before borrowing from someone else).
There are two major advantages about using your own money.
First, if you go bust you won’t be in debt with anyone. This is a god-sent. I, personally sleep much better at night knowing that I don’t owe people or banks money (I’ve learned that lesson with student loans).
Secondly, When your own skin’s in the game you tend to focus more. It’s basic psychology that people will do more to guard against losing something, so when you run the risk of losing your savings you tend not to procrastinate as much and will schedule the necessary time needed to actually run a business.