You have a great idea for a new company. You have the knowledge to put it into action, and you’re willing to work as hard as you need to in order to make your dream come true. But how will you fund it? Finding the money for a startup can be a challenge, particularly if you are not surrounded by other startups and people who fund them, but it is not an insurmountable one.
Seeking a low interest rate option can be a good way to start your business. One of the first places you might think to look is at your local bank, especially if you already have good credit and a good relationship with them. Unfortunately, even if you put together a business plan and a presentation, they may not be willing to lend the amount you’re requesting, not to mention a favorable interest rate, so this will be cause you to look to securing further funding elsewhere.
You might also look to the government-run Small Business Administration for a loan. While the SBA does not loan money, it can connect you with lenders who may. If your credit is not good enough to qualify for any loans or you still need additional money, there are other places to look.
Friends and Family
Many startups are bootstrapped with the help of friends and families. There are advantages to getting loans from friends and family. They are likely to be less stringent in their requirements compared to other sources of funding. You may pay little or no interest. However, if you take this route, it is important to be businesslike about it. You might want to draw up a contract and offer to pay interest even if they do not ask. It is important to make sure that this will not jeopardize your relationships.
Using your savings may be a good idea in some circumstances. You are not obligated to anyone if you use your savings. No one owns any equity in your new business. However, if you are investing your savings, it needs to be money you can afford to lose. If you are young and healthy and do not have dependents, this might be a good use for your savings. Others may want to look to other sources since this can be risky.
An angel investor is just a name for a wealthy person who wants to invest in your startup idea. They are often thought of as angels because they tend to take investment risks where others would not. Many startups have received their initial funding or gotten an important boost at a critical time from angel investors. You’ll need to impress your angel investors with your idea, and they may want some kind of equity in your business in return.
Some angel investors are members of larger networks, such as AngelList, who will pool their resources to fund you, but there are many other crowdfunding approaches that can be helpful. CircleUp, Fundable and Crowdfunding are among the sites set up to fund small businesses. Another possibility is seeking microloans, which are smaller amounts from individuals.