Small Business Start Up Financing

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Small Business Start Up Financing

Small Business Start Up Financing


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Small Business Start Up Financing

Succeed in your business endeavors. Find out more

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The number one question I get asked as a

small business start-up coach is: Where do I

get start-up cash?

I'm always glad when my clients ask me this

question. If they are asking this question, it is a

sure sign that they are serious about taking

financial responsibility for start it.

Not All Money Is the Same

There are two types of start-up financing: debt

and equity. Consider what type is right for you.

Small Business Start Up Financing

Debt Financing is the use of borrowed money

to finance a business. Any money you borrow

is considered debt financing.

Sources of debt financing loans are many and

varied: banks, savings and loans, credit unions,

commercial finance companies, and the U.S.

Small Business Administration (SBA) are the

most common. Loans from family and friends

are also considered debt financing, even when

there is no interest attached.

Debt financing loans are relatively small and

short in term and are awarded based on your

Small Business Start Up Financing

guarantee of repayment from your personal

assets and equity. Debt financing is often the

financial strategy of choice for the start-up

stage of businesses.

Equity financing is any form of financing that is

based on the equity of your business. In this

type of financing, the financial institution

provides money in return for a share of your

business's profits. This essentially means that

you will be selling a portion of your company in

order to receive funds.

Venture capitalist firms, business angels, and

other professional equity funding firms are the

Small Business Start Up Financing

standard sources for equity financing. Handled

correctly, loans from friends and family could

be considered a source of non-professional

equity funding.

Equity financing involves stock options, and is

usually a larger, longer-term investment than

debt financing. Because of this, equity

financing is more often considered in the

growth stage of businesses.

Small Business Start Up Financing

7 Main Sources of Funding for Small Business


1. You

Investors are more willing to invest in your

start-up when they see that you have put your

own money on the line. So the first place to

look for money when starting up a business is

your own pocket.

Small Business Start Up Financing

Personal Assets

According to the SBA, 57% of entrepreneurs

dip into personal or family savings to pay or

their company's launch. If you decide to use

your own money, don't use it all. This will

protect you from eating Ramen noodles for the

rest of your life, give you great experience in

borrowing money, and build your business


A Job

There's no reason why you can't get an outside

job to fund your start-up. In fact, most people

do. This will ensure that there will never be a

time when you are without money coming in

Small Business Start Up Financing

and will help take most of the stress and risk

out of starting up.

Credit Cards

If you are going to use plastic, shop around for

the lowest interest rate available.

2. Friends and Family

Money from friends and family is the most

common source of non-professional funding for

small business start-ups. Here, the biggest

advantage is the same as the biggest

disadvantage: You know these people.

Unspoken needs and attachments to outcome

Small Business Start Up Financing

may cause stress that would warrant steering

away from this type of funding.

3. Angel Investors

An angel investor is someone who invests in a

business venture, providing capital for start-up

or expansion. Angels are affluent individuals,

often entrepreneurs themselves, who make

high-risk investments with new companies for

the hope of high rates of return on their

money. They are often the first investors in a

company, adding value through their contacts

and expertise. Unlike venture capitalists,

angels typically do not pool money in a

professionally-managed fund. Rather, angel

Small Business Start Up Financing

investors often organize themselves in angel

networks or angel groups to share research and

pool investment capital.

4. Business Partners

There are two kinds of partners to consider for

your business: silent and working. A silent

partner is someone who contributes capital for

a portion of the business, yet is generally not

involved in the operation of the business. A

working partner is someone who contributes

not only capital for a portion of the business

but also skills and labor in day-to-day


Small Business Start Up Financing

5. Commercial Loans

If you are launching a new business, chances

are good that there will be a commercial bank

loan somewhere in your future. However, most

commercial loans go to small businesses that

are already showing a profitable track record.

Banks finance 12% of all small business start-

ups, according to a recent SBA study. Banks

consider financing individuals with a solid credit

history, related entrepreneurial experience, and

collateral (real estate and equipment). Banks

require a formal business plan. They also take

into consideration whether you are investing

your own money in your start-up before giving

you a loan.

Small Business Start Up Financing

6. Seed Funding Firms

Seed funding firms, also called incubators, are

designed to encourage entrepreneurship and

nurture business ideas or new technologies to

help them become attractive to venture

capitalists. An incubator typically provides

physical space and some or all of these

services: meeting areas, office space,

equipment, secretarial services, accounting

services, research libraries, legal services, and

technical services. Incubators involve a mix of

advice, service and support to help new

businesses develop and grow.

Small Business Start Up Financing

7. Venture Capital Funds

Venture capital is a type of private equity

funding typically provided to new growth

businesses by professional, institutionally

backed outside investors. Venture capitalist

firms are actual companies. However, they

invest other people's money and much larger

amounts of it (several million dollars) than seed

funding firms. This type of equity investment

usually is best suited for rapidly growing

companies that require a lot of capital or start-

up companies with a strong business plan.

Small Business Start Up Financing Small Business Start Up Coach provides value, inspiration and direction to entrepreneurial

women starting up and launching small businesses. Accidental Pren-her providing a place

for pren-hers to share stories, build community, and embrace their inner Samurai. Welcome!

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