4 Great Financing Options For Fledgling Entrepeneurs
Got a great idea for a business but not much investment capital? Don't give up just yet -- here are four fabulous options for getting your great idea off the ground:
Government Loans
The U.S. Small Business Administration offers a variety of loans for new startups as well as existing businesses. Loans offered though this program include:
- Basic business loans. This is the most widely-used of the federal governments small business loans. You can apply directly through a participating lender.
- Micro-loans. Perfect for small startups, these are disbursed by local nonprofit organizations from monies provided by the federal government. Applications are made through the nonprofit.
- Disaster loans. These are made to people living in areas that have been devastated by natural disasters such as hurricanes, tornadoes, earthquakes, floods, and fires. You don't necessarily have to be an existing business owner to qualify -- if your place of employment was destroyed and won't be rebuilding, for instance, you may qualify for a loan to start your own business.
Other government loans exist to help businesses that are already established, such as economic injury loans for those who live in parts of the country that have experienced significant economic downturns. Even though you can't use this type of loan to start a business, it's still good information to have in case circumstances become difficult down the road.
Venture Capitalists
Venture capitalists traditionally provide financing for entrepreneurs who can't qualify for traditional financing. The way it works is that the lender receives a percentage of the company's equity that is agreed upon in advance by both parties. This is an excellent way to gain financing for projects by those who have not yet established good credit or who have a business idea that would be considered to be too risky by conventional lending institutions. You can make your business plan attractive to venture capitalists by:
- Showing a strong understanding of your intended market that's backed by substantive research.
- Having a unique idea that fits a proven need that is not already overrepresented in the marketplace.
- Having an idea that can be patented or trademarked will make your proposed business more attractive to independent investors -- this will help your safeguard your idea from being taken up by industry copycats.
Private Loans
Private loans from family and friends are another option for those who want to start their own businesses. There are many pros and cons to doing this:
- It's often possible to negotiate an extremely low interest loan from friends or family members.
- Private lenders may be more understanding if loan payments need to be late occasionally.
- Private lenders may also feel that they have a say in how you run your business, and this can result in hard feelings on both sides.
- If your business plans don't work out, you risk losing your relationship with the friend or family member who helped fund your enterprise.
Many successful businesses have been started with the help of the family and friends of the entrepreneur. However, if you decide to go this route, it's recommended that you engage the services of a securities attorney and look at this so that everything is spelled out in clear black and white for you and for your lender in order to minimize the chances of misunderstandings. You should also work with the attorney to put a repayment plan in place in case things don't go as intended.
Grants
Contrary to popular belief, there are no federal grant programs that allocate monies for those wanting to start their own businesses. However, grant funding is sometimes available from municipal and state sources as well as from some nonprofit organizations, particularly if the business is in one of the following three areas:
- Energy efficient technology.
- Child care centers.
- Tourism related business.
Check with your local state, county, and city to see what grant options might be available to you as far as grants go.
Above all, keep in mind that there is always a way to achieve your dreams, so if one financing source doesn't work out, don't let that make you give up -- keep looking for the right opportunity.
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