11 Ways to Fund Your Start-Up

11 Ways to Fund Your Start-Up

Provided by Glenn Clevenger, Cincinnati area SBA Director

For many startups, a primary difficulty lies in acquiring the funding for startup expenses and through the early part of operations until the business becomes profitable. Here are some ideas as to how the entrepreneur might finance a startup

                                       Personal Savings – This is the way most start-ups are funded, but be sure to set aside enough to live on until the business reaches breakeven. Also, don’t drain all your funds getting started as you may need some in the future. If things don’t go as planned, other sources of funds may not be available.

Retirement Savings – Depending on your age, this might take time to access, you may incur a penalty and/or taxes, and you may incur some cost. Also, do you really want to bet a significant portion of your retirement savings on a high risk start-up?

Home Equity Loans -This is one of the fastest and cheapest ways to obtain funding for a start-up. Like tapping retirement savings, you are risking your future lifestyle if things don’t go as planned.

Friends and Family – This can be an easy source of funds, but remember that even those closest to you may not share your dream. Be sure to treat the investment as a business transaction so no bad feelings arise if things don’t go as planned. Also, think about future get-togethers if your new business fails before you can repay the investment.

Banks and Credit Unions – Getting a bank loan for any start-up is difficult at best, but is a viable option if you have income outside the business, have some prior experience in the industry, can make a large investment of your own funds, and have collateral. A SBA guarantee to the bank will provide the bank with some collateral.

On Line Lenders – In the last few years, there has been many new web sites created which help small businesses obtain loans. This includes so-called “crowdfunding” sites where loans are arranged between individuals and a business. Attached is a sheet with some of the sites.

Angel Investors and Venture Capital Funds – This kind of investor is typically looking for a business which might become a huge success in the future. Many are looking for high tech opportunities of some sort, for example. Also, they typically want to become a partner so you may lose some control.

Economic Development (“ED”) Programs —There are many state, city, and local ED programs which may help fund your start-up. Unfortunately, these typically have a special focus such as job creation or for veterans. Some, also, require extensive paperwork and take months to get approved.

Corporate Programs – There are a few large corporations who fund start-ups for business that become one of their vendors. These are hard to find and have terms that vary greatly. Also, maximum loan amounts are typically small.

Grants—Although there are more than 1,000 federal grants (grants.gov), none are available to fund a private business start-up. Some of these go ED organizations who may then relend the funds. Most go to fund research activity and ED activity such as SCORE and Small Business Development centers.

Credit Cards – Because this is an easy way to obtain funds, many start-ups are funded by credit cards. These typically carry a high. Interest rate and can affect your personal credit rating if not used judiciously. Also, they are not a good source of funds as your business grows and your need for capital becomes larger.

Smartbizloans.com – May be the only company that leverages technology like the aforementioned alternative lenders but for the purpose of facilitating SBA loans through banks such as Golden Pacific Bank and Celtic Bank. Loans range from $5,000 to $150,000.

FundingCircle.com – Another on line site where individuals can make loans to small businesses. Loans up to $500,000 are available and applications get an answer in 48 hours.

Prosper.com – Offers loans from individuals up to $35,000. Launched in 2006, this lending platform has surpassed the $1 billion in loans made.

LendingClub.com – Offers loans from individuals up to $35,000. The business owner must have a credit score of at least 660. Also launched in 2006, after Prosper. LendingClub claims to have generated above $3 billion in loans.

Kickstarter.com – This is a funding source for “creative projects”. You must establish a funding goal and reach it or no funds are advanced.

Indiegogo.com – You set a funding goal and get whatever is raised in a loan. It helps to do bartering in this site.

Fundable.com – another crowd funding website based in Columbus Ohio that specializes in raising equity through crowd funding. Registered investors must be “accredited”.

Angel.com —Angel List is a website that seeks to match investors with startups for raising equity or debt investments. Angel List also provides templates for term sheets.

 

 

Comments

  • John B. Vinturella | Jan 30,2016

    We’re a bunch of volunteers and starting a new scheme in our community.
    Your website provided us with valuable info to work on.
    You’ve done an impressive job and our entire community shall be thankful to you.

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