For most entrepreneurs, you have to prove your concept before you can accessing funding. Most businesses require initial capital for things such as inventory, marketing, physical facilities, incorporation expenses etc.
The following are things which you should consider when exploring funding options:
- Whether your needs are short-term or long-term.
- If the money is for operating expenses or for capital expenditures
- Whether you need all the money at once or in small amounts over many months.
- Whether you are willing to assume risk if your company does not succeed.
There are two main types of business financing which are as follows:
Debt Financing: This entails you borrowing the money and agreeing to pay it back in a time frame at an agreed interest rate. You will have to pay back the money regardless of whether the business idea succeeds or not.
Equity Financing: This entails you selling partial ownership of the company in exchange for cash. The investors assume all of the risk and if the company fails, they lose all of their money. If it succeeds, the make a much greater return on their investment than interest rates.
Many of the options which are available for start-ups:
Family and Friends: These will be your best sources of loans and equity deals. They are usually less stringent on credit and their return on investment.
Credit cards are a tool for cash flow management. You should keep one or two credit cards with no balance on it and pay it off to give yourself a 30-60 day float with no interest.
Bank loans comes in various shapes and sizes from microloans offered by small banks to six figure loans by major national banks. These are typically easier to obtain when backed by assets such as home equity, an IRA.