Small Business Start Up Capital
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Starting an Internet or home-based business may not require a lot of capital, as you do not need to find office space and hire several employees. However, you need basic infrastructure for your business. You would also need to:
- Market your business
- Build a client base
- Pay bills for operational expenses
In such cases, there are several sources that can fund new small companies. However, seeking and securing cash requires:
- In-depth and cautious research
- Excellent negotiation skills
- Persistent commitment to your new business
Sources of Start Up Capital for Small Business
Sourcing start up capital for small business is among the most daunting tasks for new entrepreneurs. Most entrepreneurs find money through banks, private investors, suppliers, customers or professional angel investors. The source is dependent on the manner in which you want to raise the funds and pay it back.
Banks: They are a direct source of funds. Several banks offer loans to small businesses that are already operational. However, you will need a business plan and a personal guarantee to convince the bank of your venture. Since the funds are given as a loan, you must generate substantial cash to payback these loans. You can find banks through the yellow pages or via the Internet.
Government: The government also assists in the survival of small businesses by providing them with various grants through the Small Business Administration (SBA). However, these grants are highly competitive and have strict rules about money usage. Moreover, there is no guarantee that you will receive a grant, so you need to keep other options open. Government agencies can also help you with the legal and administrative aspects of starting the business.
Friends and family: The most common source of funds for entrepreneurs is a group of friends and family. However, you must treat these investors as business relationships and reveal the use of money. You should also show the manner in which you intend to repay the funds. You may decide to pay interest or make them your partner in business.
Loan: You can borrow against your 401(K) plan. Alternatively, you can get a loan against your home. However, you might lose your home if the business fails. Use this option only if you are assured of the success of your business.
Insurance policy loan: You can receive up to 90% of the cash value. Your policy remains in place as long as you pay your premiums on time.
Strategic investors: Suppliers and customers may also decide to back your business. If your product or service complements that of your supplier, they might invest. However, accepting funding from a supplier might prevent you from using the supplier's competitors.
Private angel investors: These investors are similar to professional venture capitalist firms. You need to convince them of the viability of your business plan. These angel investors expect a return in the form of IPO, acquisition or stock buyback over the period of three to seven years.
Small Business Start Up Capital - To learn more about this author, visit Carrie Langstroth's Website.
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