One of the most frequent problems faced by budding entrepreneurs is the question of where to get funding to start their business. Most of us don’t have the kinds of connections you’d need to get the kind of investment capital to start a huge company, and that’s just fine. You’re not out to rule the world, you just want to get a small business up and running.
How much do you need?
The first thing you need to do, though, is figure out how much you are going to need to get your business off the ground. You need to add up all of your starting costs and figure out what working capital you’ll need. That involves making a cash flow projection for the next 12 months, and then figuring out how much working capital you’ll need beyond what comes in.
Primary sources for funding
Most small businesses start with an individual’s own savings. Personal savings is the safest way to start a business, because it doesn’t require you to owe anything to anyone. In an ideal world, your personal savings will be all you need to get up and get going.
Realistically, however, you’re probably going to need more than just your own savings. You can consider turning to friends and family who believe in you and believe in your business idea. If you go this route, consider drawing up a formal agreement with them that indicates how and when the funds will be repaid.
From there you can start looking at things like personal loans. You may be able to get a personal loan from your local bank or credit union, and you may be able to do so at a decent rate. Of course, this relies on the idea that you’ve got a decent credit rating to start with.
You can also consider a second mortgage, also called a home equity loan. The downside to this is that, if your business should fail, your home could be in danger. Still, it’s a relatively low-interest way to fund a new business.
You can also look into a small business loan from the small business association. The SBA loans money to entrepreneurs, and will often make loans when a bank or credit union wouldn’t.
The key with borrowing money is knowing for sure you’ll be able to pay it back, and having a solid enough business plan to convince someone to loan you the money.
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