Finding a non-traditional source of funds for your small business
Starting your own small business is an exciting yet frightening experience.The thought of marketing your own product or idea and having the freedom to run your own business is as exciting as it is scary.One of the obstacles small business owners run into is finding sources of financing to back up their business.Banks will rarely fork out the money you need to start a small business because of the risk so small business owners are forced to look in other places.Finding a non-traditional source of funds for your small business is usually the best route to go.But where to start?Let's take a look at some non-traditional sources of funding for a small business.
Looking first to your own personal savings can be a great way to fund your small business.The best benefit about using your own money is that you never have to pay anyone back.The worst part about it is that you've just used all your money and if you run into a jam, you're pretty much out of luck.
- Personal Savings-
Investment Money- When I say investment money, I mean the money you have taken and put away for something else.This can be life insurance, CD's/ bonds, retirement (although this is discouraged), or a 401K.You have to be careful about where you take the money from though as some of the investment savings will charge you money if it's taken out before it matures.If you really don't want to find someone else to borrow from then look into some of things you have invested money in; you might find what you need there.
Friends and Family- No one likes to borrow from family or friends but it is a way to get the financing you need without paying a really high interest rate.Be careful though, if things go wrong it can split friendships and family members and may not be worth it in the end.
Venture Capitalists- Venture capital is a type of financing that new start up businesses us to fund the growth of their company.The venture capitalist is the person who provides the funding (most often exceeding one million) in exchange for some sort of equity in the company that they have given money to.Venture capitalist hopes to see a large return on their investment within three to five years; the sooner the better.They can differ in how they want to be involved with the business; some want a little control and others want complete control.Most of the investments however do not show impressive returns within their allotted time period and many actually fail.A venture capitalist has extremely strict criteria for the business owner in order to try and withstand major money loss.If you're looking for an investor that you would rather not give control of the company over to, then venture capitalists are not for you.
Angel Investors- Angel investors are individuals who invest in businesses looking for a higher return than they might normally see from a traditional investment.Most are very successful entrepreneurs who are looking to help small businesses get off the ground.The term angel comes from the practice in the early 1900's of wealthy businessmen investing in Broadway productions.Today, however angel investors are much like their title; offering their expertise and experience as well as their money.They are unlike venture capitalists in that they don't always want a part in the business.Some will just offer their opinions and advice, while others may want a smaller more involved part of the company.If you're the kind of person who wants a little more freedom with some expert advise now and then, angel investors are perfect for you.
Finding a non-traditional source of funds for your small business isn't difficult.It does however require a lot of homework on your part and planning.