Where Startups Can Get Their Initial Funding
Finding financing for a new business is often the biggest hurdle to getting started. It doesn’t matter if you have a sound plan, good processes, and dedicated professionals on deck and ready to step into key roles if you can’t get the funds to open your doors. That’s why entrepreneurs need to focus on finding the funding needed as the first order of business, and why research into financing startups should be a major project for everyone involved in getting a company off the ground floor. There are a few common methods of financing, and it’s a good idea to explore as many of them as possible if you want a robust base of financial resources.
If you have a lot of investments you can roll into the new business, it’s a great way to maintain control and keep the profits to yourself. You can use methods like the creation of an S-corp to allow certain retirement accounts the option of investing in the business, too, so you can basically finance with your retirement account as a partner in your business, expanding your financial reach while ensuring you keep the profits in the end.
Friends and Family
When self-funding isn’t enough, the next logical place to go is your social circle, especially those who are particularly close. You can either take on debt for later repayment or take on partners, and either choice has consequences that will shape your operation. Startups that have partners need to outline their roles carefully, and if you’re looking to buy back control over your company after your investors make a profit, you need to make that clear up front. A fair number of companies manage to launch on just self-funding and investment from friends and family, but a lot depends on the wealth of the people around you when you choose this method.
Business Loans and Alternative Financing
Loans for business assets can help extend your funding, especially if you look into programs like those offered by the SBA. Usually, you can get equipment and facilities for anywhere between 15% and 30% down, and some lenders offer business loans for working capital that don’t require an asset purchase if you have existing assets you can finance.
Looking for equity sponsors, and hybrid mezzanine deals means being ready to sell your idea to new people until you find a good match, or a good set of matches. There are a lot of ways to approach this, from peer to peer investing in startups to pitches at angel investors, but taking on equity partners often means taking on partners who won’t settle for being entirely silent about how your company is run. That’s sometimes a great resource, but it’s not a good fit for everyone, so consider your options carefully.