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Sources of Finance for a Start-up Business



Beginning a business is an incredible feeling. For those who have raised children, you remember the overwhelming feeling of the awesome responsibility of bringing a new life into the world. As an entrepreneur, a similar feeling comes over you when beginning on a new business venture. In essence, to entrepreneurs, a new business is similar to that of a child – whatever you pour into the business; you will reap from its success. If you feed a child poorly, its health will suffer. If you do not feed your business adequately, it too will suffer. What is food to a brand new business? The start-up capital required to make it run. Like a vehicle driving up a hill, if it does not have adequate power, it will not make it to the top. We’ve long heard the saying, “It takes money to make money,” but if someone is starting out, where do they get their seed capital? This is where the creative mind of the entrepreneur gets to work as a problem-solver.

What kind of a business do you want to start? Do you have a written business plan? Do you have benchmarks and goals set in a timely manner? The great Winston Churchill once said that “A failure to plan is a plan to fail.” Before you seek start-up capital, it is highly recommended to have a detailed business plan. There is a variety of software products available to help a budding entrepreneur to put together a business plan, but if on a limited budget simply state a few basics:

  1. Your business purpose: What will you do? Who will you serve?
  2. Your mission statement: What are your guiding principles? What will drive your company to excellence on a daily basis? What is your end goal?
  3. Your Unique Selling Proposition (USP): What makes your company unique from all the others that exist in the marketplace? Why would someone choose to do business with your company? Why would you do it differently?

 

Once you have these basic ideas on a well-written document, you can use this as your primary business plan to give a big-picture view to any casual observer. Feel free to include your target market, marketing plan, and so-on as you dig deeper into your business. The basics listed above will at least lay a foundation and more importantly cast a vision for anyone you want to include as a potential investor.

Once you have these basics down, seek sources for funding. In an economic climate where investors are hesitant to put their income into a volatile stock market, individuals are seeking to park their funds into small businesses who they can offer money to in the form of a loan, or equity in the company. Banks are not giving out money, regardless of what the rhetoric on Wall Street is currently. It’s increasingly difficult to walk into a bank and ask for a loan of any amount without any collateral. This is where private individuals are the best resource for entrepreneurs.

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Begin with your close family and friends by showing them your preliminary business plan. Let everyone know up front of your intentions to seek their investment into your business. Allow them to ask you questions, and most importantly, do not become defensive if some of the questions seem pointed. Understand that entrepreneurs are a rare breed. Most people believe that working as an employee is “safe” and “secure,” even though today’s economic climate has proven otherwise. Be prepared to defend your business plan, and be prepared to justify the investment. Your family and friends are used to speaking to you as just that – a friend or family member – not necessarily a business owner, so prepare yourself beforehand. The more prepared you are, the better off your presentation will come across.

Next, seek investor groups where individuals pool their funds to invest together. One such organization is a website called Prosper.com. At Prosper, individuals can request loans by presenting their proposal, showing their credit scores, current debts, income, and assets. The higher someone’s credit score and income are, the greater their chances of receiving a good loan. Investors then bid on your loan amount, offering varying amounts of money with a certain interest rate attached to it. If enough investors agree to pool their funds, Prosper gives you a lump sum of money with a certain interest rate attached to it. Most loans are 36 month loans, but can also be negotiated to shorter periods.

Another source of financing are grants that your local government, municipality, and country offers for small business owners. Governments want to increase the amount of tax revenue they receive. The most effective way to raise capital for a government next to raising taxes is to encourage business growth. Many countries have agencies that are dedicated to providing resources to small businesses. In the United States, the Small Business Administration, or SBA, offers millions of dollars in grants to small businesses who are starting up or are expanding. Additional information may be found at SBA.gov.

Lastly, marketing online for capital will also find you investors. Almost every city in the world has a Craigslist site, where someone can place a classified advertisement at no cost requesting to meet with investors. Seek similar websites or publications so that you can get in front of potential investors.

When seeking capital for your start-up, it is vital to never quit. Prepare yourself with a solid business plan, and be prepared to answer any question regarding your business. Ultimately investors are not only investing their money into a company – they are investing their capital into you. The better prepared that you are, the better your chances are that someone is willing to open up their pocketbook for you.



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