Which Funding Option is Best for your Business Startup?

Your business is new and all you know for sure is that you need cash. You can’t open your business startup on your own and you’re looking for funding. There are a few options available to you. Although you may not qualify for some of these, they are worth looking in to and knowing about for future endeavors even if you find that your business isn’t ready yet.

Friends and Family

Judge Judy may say to never borrow money from friends or family but a lot of people do it and if you’re absolutely confident that owing these people money won’t impact the more important personal relationships that you have with them, it’s often the simplest option. Possibly the best way to go about asking is to offer them a stake in the company. Instead of a “give me money and I’ll pay you back” type of deal (which has no benefit to them) if you offer them a stake in your company, not only will they see themselves as investors, they have a vested interest in seeing it grow and that can mean that they take an active part in helping you. Never turn down free labor.

The Bank

Most of us know how the bank works. You head to the bank with all kinds of facts and figures and you stop short of begging them to loan you money. Small business loans work the same way but make no mistake, they are hard to get especially if you don’t have an actual business yet. (Hint, register your business with your state before going to the bank. It makes you look more serious.) Look for banks that deal with Small Business Administration loans. These are subsidized loans that are often easier to get than conventional loans.

Angel Investors

Angel investors, unlike venture capitalists would rather deal with businesses in the beginning stages of development. (of course each angel has different tastes in where their money goes) Often, you have to work hard to set up a meeting with an angel and pitch your company to them. Have all of your financial information ready before going to the meeting. They will have a lot of questions about the numbers.

One funding option increasingly popular to angels is convertible debt. They may give you $250,000 at 7% interest. You only make interest payments for a certain period of time. At the end of that time period, they have the option of asking for their $250,000 back or buying a piece of your company for the money they invested in you. This protects them from losing their investment.

Bottom Line

Of course if you have the money to fund your own startup, do it, but if you need help, explore each of these options and discuss with a finance expert on your team. (You are getting help in areas where you’re not an expert, right?)