How do you find the financing to start your own business?
Every business requires a little bit of upfront investment, whether it be the owner's personal money, a bank loan, or money from outside investors. The options for how to finance your business are limitless, so you should take the time to explore the right fit for your business plan.
Click each financing opportunity below for a description.
Bootstrapping lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401(k). With self-funding, you retain complete control over the business, but you also take on all the risk yourself.
Crowdfunding raises funds for a business from many people, called crowdfunders. Crowdfunders aren’t technically investors, because they don’t receive a share of ownership in the business and don’t expect a financial return on their money. Crowdfunding is low risk for business owners, and it's a way to retain full control of your company. Every crowdfunding platform is different, so make sure to read the fine print and understand your full financial and legal obligations.
A business loan is considered debt financing, as opposed to equity financing. This means that the business owner retains control of their business at the cost of interest they pay on the loan. When applying for a business loan, you should be ready to present some information to the lender. Traditionally, a lender would prefer to see a business plan and financial projections for the next five years. The most important thing a business owner can do to prepare to talk to a lender is to make sure they know and can defend their financial projections and the assumptions behind them.
If you have trouble getting a traditional business loan, you should look into SBA-guaranteed loans. When a bank thinks your business is too risky to lend money to, the U.S. Small Business Administration (SBA) can agree to guarantee your loan. That way, the bank has less risk and is more willing to give your business a loan.
Use Lender Match to find lenders who offer SBA-guaranteed loans.
Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company. This differs from traditional financing in several important ways. Venture capital typically focuses on high-growth companies and invests capital in return for equity, rather than debt (it’s not a loan). Venture capitalists take higher risks in exchange for potential higher returns and have a longer investment horizon than traditional financing.
Almost all venture capitalists will, at a minimum, want a seat on the board of directors, so be prepared to give up some portion of both control and ownership of your company in exchange for funding. There’s no guaranteed way to get venture capital, but the process generally follows a standard order of basic steps.
