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Ideas For Funding Your New Business

Aug 17, 2007
So, you have a great idea for a business but no money to start it with? Getting funding for your business can seem impossible, but if you really do have a good idea and a solid business plan you may be able to find more people willing to invest in your idea than you think.

One thing you must be willing to outline in detail is how you intend to service the debt as well as how the potential investor will benefit from your request. In addition, be prepared to do your home work and have thorough market research, projected costs and a detailed summary of how you intend to generate income. This information needs to be projected for a period of three to five years. It's a good idea to project your expenses on the high side.

Have some idea of what you expect to pay your investor. The only reason someone is going to lend you money is if they can see decent profits in exchange for lending it to you. Your market research had best substantiate that your plan is viable and will provide them with sufficient return on investment to justify their involvement.

Before you begin your search for investors, it's a good idea to have an attorney and/or accountant take a look at your plan. Be sure to use a qualified business attorney (not your family lawyer). There are a lot of laws pertaining to how equity capital can be raised from the public, and the laws change often so you want to be sure to use someone who is up on this. Also, a good professional may suggest specific points that you may have overlooked.

Once you have all the paperwork and representation in order, it's time to hit the streets and try to find someone who will invest in your new company.

One thing you might try is getting some relatives to invest. Yes, it can seem like begging, and it's a difficult thing to have to swallow your pride. Surprisingly, in a recent survey, almost 30% of entrepreneurs said that they raised all or part of the capital they needed through family members. If this is your choice, make sure that you have your attorney draw up a regular business contract. When approaching family members, talk to them about their investment the same way you would any other outside investor. Tell them about how much money they can make, not about how much you need their help. And make sure that you keep to your end of the agreement.

You may have to tap into your own financial resources and drain some of your savings or turn to your credit cards. This is the most common way for entrepreneurs to raise needed business capital. Before choosing this method however, talk with your financial advisor. You want to look at the long-term consequences of using your savings, life insurance or credit cards, especially in the event that your business venture fails, or does not bring in the projected return on investment (ROI). If you do end up financing your project using credit cards, make sure that you shop around first, and find the card that will offer you the best rate and gives you the most "bang" for your buck.

Use local business directories to find companies that specialize in "investment services." You can approach a local bank, but try and find a bank that specializes in industrial or business type loans.

You might consider incorporating and selling stock in the company. Although security laws in the U.S. have made it easier for companies to go public, and offer stock as a way to raise needed funds, this is still probably the most risky choice. It is usually not a recommended option for very new or very small companies. Because of the number of legal issues involved, consulting with a knowledgeable attorney beforehand is vital. There is also a lot of stress involved in running a public company, and a considerable loss of autonomy and control. Before making this choice, be absolutely sure that this is the wisest course of action for your business.

When it comes to getting funding, it doesn't hurt to be creative. If you believe in your idea, don't be afraid to do what ever it takes to launch. There are plenty of ways to come up with the capital you need. Think outside the box. Whether you are looking for $500 or $500,000 the money is there you just need to dig for it.
About the Author
Lee Dobbins writes for Minding Your Business where you can get more tips and ideas for small businesses.
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