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Funding Your Small Business
Many small businesses need money to get started.
They require money for purchasing inventory,
renting space, buying equipment, and paying
employees, among other things. See start up planning for more on how to estimate your budget.
Money may come from many sources,
many of
which are listed below in the
order of difficulty
of obtaining:
- your own money - the easiest place to start.
Even if you choose another source of funding,
others will expect you to make a substantial
investment of your own money as evidence
and insurance of your commitment to the business.
- loans from friends and relatives - if you
know people that can contribute, seek them
out. The advantage is that they know you
and are more likely to invest in an idea
that they think you can turn a profit from
based on their prior experience with you.
However, be sure to document the basis of
the funding -- loan or ownership -- and the
mechanism for repayment so that there is
no misunderstanding in the future.
- grants and low-cost loans - government recognizes
the economic and social value of small businesses,
particularly those run by minorities or operating
in economically depressed areas. Look to
see if you qualify for startup grants and
low-cost loans.
- banks - a traditional source of funding.
Be prepared to review the details of your
planned business -- the more details the
better, since you have to persuade them that
you will be able to repay the loan.
- venture capitalists - for businesses that
need a lot of cash to get started, have a
competent owner/management team, and offer
the real potential for significant return,
venture capitalists can be the answer. In
addition to providing funding, they often
provide management advice (a plus) and oversight
(can be a negative if you like to run the
show) to protect their investment.
- investors - you can always try raising money
from unknown investors; the funding can come
from selling bonds, promissory notes, or
part of the ownership. This area involves
many legal complexities, so consult with
a professional.
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