- How much money you need.
- How you'll spend the money.
- How you plan to repay the loan.
Action Steps
The best contacts and resources to help you get it done
Take stock of your personal finances
The primary source for funding a new venture is personal finances. However, many experts say this method is the riskiest financing option. The reason: you're putting up your own collateral to finance your business. If you take out a second mortgage on your home or use a line of credit, you can wipe out your assets if your business falters. Other options such as credit card loans or tapping into personal savings are equally risky.I recommend: Whether you decide to self-finance or seek an outside loan, check that your personal credit history is in tip-top shape with a credit report from Equifax, Experian or Trans Union. Since you don't have a business credit history, suppliers and lenders will base their decisions on your personal credit history.
Be prepared
No matter where you turn for capital, you'll need to provide solid documentation that your business concept is sound. Be prepared with a convincing business plan, cash flow projections and personal financial statements and tax returns. With the right materials, you can convince lenders and investors that you'll be able to repay the loan.I recommend: Get help writing a business plan with Business Plan Pro software.
Friends and family connections
Money that's raised privately can be a boon, because it may be interest free or low interest. However, you should be aware that interest-free gifts may have tax implications. Loan requests should be professionally presented and include detailed financial projections. Avoid the temptation to forego formalities with loved ones. Draft a promissory note when getting a loan from friends or family so that interest payments are clearly detailed. Be prepared that if the business fails, it could damage personal relationships with investors.I recommend: Download a promissory note template by clicking on your state at InternetLegalResearchGroup.com or at BusinessNation.com.
Go through banks or credit unions
If you can show that your business proposal is strong, you may be able to land a loan from your bank or credit union. These loans are issued in many types, with varying interest rates and maturity dates. Most are secured against hard assets, such as real estate or equipment.I recommend: Before heading to a bank, visit your local Small Business Development Center. They can offer advice on how to make your presentation to bankers and direct you to banks that are start-up friendly.
Look for angel investors
Angel investors are individuals or groups that provide capital for business start-ups, often in exchange for ownership equity. More money is invested annually through angel investments than through venture capital financing.I recommend: Find a directory of angel investment groups at the Angel Capital Association or send a request to find angel investors at GoBigNetwork.com.
Consider venture capital
Venture capitalists fund few start-ups and look to make large investments, typically over $1 million. However, the U.S. Small Business Administration (SBA) licenses and regulates the Small Business Investment Company Program (SBIC), which does make venture capital investments in start-up businesses.I recommend: Check into the SBIC program to see if you can take advantage of this option.
Apply for an SBA loan
Nike and Apple Computer got their start with SBA equity loans. The money doesn't actually come from the SBA; it comes from participating banks. The SBA simply guarantees the loan, which helps budding entrepreneurs who might not normally qualify for a loan.I recommend: Find out if there's an SBA loan that's right for your new venture.
Tips & Tactics
Helpful advice for making the most of this Guide
- Assess the creditworthiness or investment potential of your business concept before seeking funding.
- There's no silver bullet remedy for landing financing. So don't limit yourself by trying to force the wrong fit.
- Have a sense of your strongest assets when pitching potential investors or banks.
- Don't seek investors through classified ads.
- Your financing should align snugly with your business plan.
Find an Investor
Need startup money? $500 million available only for innovative startups.
FundingUniverse.com
Need startup money? $500 million available only for innovative startups.
FundingUniverse.com
Venture Capital Resource
Offers a venture capital directory on CD-ROM. Includes contact data for all active US venture capital firms in 90 industries.
www.capitalvector.com
Offers a venture capital directory on CD-ROM. Includes contact data for all active US venture capital firms in 90 industries.
www.capitalvector.com
Raise Capital
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digitalppm.webs.com
Raise the capital your company needs. Find out what it takes using a Private Placement Memorandum and a Phase II Business Plan. #1 selling on the net.
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