Starting a new business can often be a costly endeavor. Sometimes it costs $1,000, sometimes it costs a million dollars. Raising enough money to start a new business can be a very tough road block. Fortunately, there are a lot of options you can choose from. Let’s take a look at each of these options.
Visa, Personal Loan, Friends and Family
More small businesses are funded on a Visa card than any other funding method. The next in line is money from friends and family. You don’t always have to go outside your own financial ecosystem to get money. In fact, if you can raise enough money within your own ecosystem, it’s almost always better to take that route. Otherwise you could end up spending six months fundraising instead of actually building a business.
Prosper.com is a peer-to-peer lending platform. That means instead of asking a bank for money, you go to a giant database of private lenders. Each lender only puts in a small amount on each loan. If you’re asking for $5,000 for example, you might end up getting $50 from 100 different people.
SBA Loan, Bank Loans
These kinds of loans are notoriously difficult to get. They also take a long time to process. There’s no harm in beginning the traditional loan application process, but don’t depend on it. Look into other funding methods while you’re waiting for your paperwork to be processed.
Kickstarter and IndieGoGo
These crowdfunding websites are becoming more and more popular. Businesses have frequently used these sites to raise as much as $1 million dollars or more. The premise is simple: you create a campaign asking for money, then “pre-sell” goods. Once your business is up and running, you send your funders the goods that you promised them.
Angel investors are usually wealthy individuals who invest their personal money into your business. Typically an angel investor will invest between $10,000 to $125,000. Most invest in the low five figure range. Look for angel investor circles in your area to make a presentation to.
Venture capital is a very often misunderstood type of funding. The truth is, very few businesses are truly cut out for VC money. How do you know if you’re a candidate?
- You’re willing to go big or go home. In other words, you won’t settle for a $5 million a year business. You’re ready to commit to bringing a 10x to 100x return on your investor’s money, or make nothing at all. No mom and pop businesses.
- You explicitly agree to sell your business at some point in the future. Don’t take VC money if you don’t want to sell.
- You agree to work under supervision and regulation. There are legal and financial parameters you’ll have to operate under that you just wouldn’t have in a private business.
Furthermore, your business needs to fit the “mold” that VCs in your area are looking for. In San Francisco, that’s usually two co-founders, at least one of whom is highly tech savvy. They’re looking for industry disrupting new technology. In New York, finance and business savviness is valued a lot more highly than in San Francisco.
Use TheFunded.com to learn more about VCs and angels in your area.