December 31, 2009

Every business is different and has its own specific cash needs at different stages of development; therefore there is no generic method for estimating your startup costs. Some businesses can be started on a shoestring budget, while others may require considerable investment in inventory or equipment.

Key Financing Methods:

• Boot-strapping
• Debt Financing
• Grants
• Friends & Family
• Angel Investors
• Venture Capitalists
• Peer-to-Peer Lending

Boot-strapping
Look no further than yourself to find the funding you need—perhaps using your savings, your initial revenues, credit cards, equity pulled from your home, etc.

Debt Financing
Debt financing requires that you qualify for a traditional bank loan (not common for raw startups), or that you find a bank that can provide you a loan with a SBA guaranty. Before landing a loan, you need to understand how to maximize your odds for success in acquiring it. The lending process is inherently a tough one, but it’s also a system that has been the catalyst of success for many small businesses.

Grants (Free Money)
Grants are special programs designed to fuel the innovative fires of small businesses, and typically target specific groups or types of businesses, such as technology businesses, veteran-owned businesses, women-owned businesses and minority-owned businesses.

Friends & Family
Straight forward – those that love you and want to see you succeed may be interested in investing in your future.

Angel Investors
Angel investors are individuals who invest in companies at an early stage in exchange for equity and the chance to help guide the company. In contrast, venture capitalists invest as a profession and generally on behalf of other investors.

Venture Capitalists (VC’s)
Venture capitalists are individuals or companies with large amounts of capital to invest and expect higher returns.
Use Venture Capitalists if you already have a great track record in your field or as an entrepreneur, and if you have a business concept that will require a lot of money ($250K to $10s of millions) and will have a rapid growth curve.

Peer-to-Peer Lending
Individuals, some of them with little or no collateral, seek loans from ordinary people looking to lend. Lenders compete with each other to make loans, often resulting in lower rates for borrowers — averaging 10% to 16% — than are available on unsecured bank loans. Top P2P Lenders: Prosper, Kiva, LendingClub. Click here, to view a Washington Post article on P2P Lending.

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