Starting a new business can be stressful, exciting, and frustrating all at the same time. One of the first steps into starting a new business is finding a funding source. You don’t need millions of dollars to start a new venture and bootstrapping is often the smart way to go. However, even the simplest businesses need some money to get rolling. Below I will discuss the ways you can get some money to start that business.
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Family and Friends
A great place to start to raise some money is through family and friends. Family especially are often more willing than others to help out because they generally want to see you succeed more. One word of caution is be sure to get everything in writing. How much are you borrowing or are the family members getting a percentage of the business. Friends can work out the same way and you should take the same precautions whether it’s a loan or a stake in the business.
Venture Capital Money
If your new business idea is scalable and new there is a good chance you can pitch your idea to venture capitalist. This is going to be a harder sell and you will have to really work for venture capital money. Often times you may have to pitch to dozens of firms before you get interest. You can read about how to pitch to venture capitalist here.
Get a Loan
Whether it’s a traditional bank loan or a small personal loan this is an option. Many entrepreneurs starting out put up personal collateral when they need a loan now. If you are truly bootstrapping your business you don’t need a large loan. Only borrow the amount of money you need and don’t over extend yourself. While starting a business is risky it’s important to be able to pay back your loans on time.
Home Equity Loans
One of my favorite ways to get the startup money you need is to get a home equity loan. If you owe your home you can use the equity you have built and borrow against it. What is great about these type of loans is the interest rate is relatively low compared to personal loans. The payments are also paid back over a long period of time so the monthly loan amount is usually really low.
Credit Cards
Not the best option but many people do this and it’s a viable option. Sure the interest rate will generally be 14%-30% but for some people this is the easiest way to fund a new business. The only caution here is to be sure you will be able to make the monthly payments even if the business fails.
Crowdfunding
Crowdfunding has become very popular the past few years. Kickstarter has helped start thousands of business and can be a powerful tool for entrepreneurs. It’s important to know that with Kickstarter you have to meet your funding goal or you receive no money.
Borrow from 401K
Taking money out of your 401K is another great option similar to a home equity loan except you are borrowing your own money. If you happen to have an IRA you won’t be eligible for this option. There are several rules to borrowing but usually you are only allowed to borrow half of the amount you have in your 401K. The interest rate is usually the current prime rate plus 1% on top.
Starting a business can be difficult especially if you don’t have money already saved up to fund it. Most people never have enough saved so borrowing money or getting investments into your business are all great options.
About Carson Derrow
