The issue of raising funds for a new business is a worry that’s notorious for giving entrepreneurs sleepless nights. Often, an entrepreneur will have terrific ideas, plans, and projects, but they lack the funds to go anywhere with their ideas. This can obviously be a real setback for many people and has the potential to stop some from even trying to start a business.
Below are a few sources of funds that, depending on your circumstances, you might be able to tap into. As with most things in business, each source has both advantages and disadvantages. They’ve all got their own procedures and processes as well. We won’t go into all the information you’ll need for each source, but this should, at the very least, get you thinking about the possibilities:
Funding That Could be Available to You
Family and Friends
Although it can be a very uncomfortable thing to do, turning to friends and family when seeking funds is the first option for many entrepreneurs. Your family and friends are the people who care about you the most and will be most likely to help you out. If you are known to be trustworthy, your friends and family are much more likely to lend or give you the money that you need.
Individual Private Investors
When raising the required funds to finance your new business, approaching a private investor is an option that you may want to consider. These are typically people with a high net worth and will often times use their wealth as a tool to encourage young entrepreneurs who live in their community. If you are aware of any private investors in your area, taking your business idea to them just might pay off big. One example of a wealthy person who uses his wealth to encourage young people in Seattle is Bill Gates. Imagine having someone like Mr. Gates backing up you and your!
Private Investment Companies
Also known as “venture capitalists,” private investors are another option to try when looking for business funding. These folks are much more selective where granting funds to entrepreneurs is concerned. Venture capitalists prefer to provide you with the money that you require to start your business in exchange for a portion of the business, rather than loaning the money for interest. In these cases, they enter the picture as partners. Never forget that private investors can be very tough, and will often require that they receive a controlling interest in your company. (A 35%-60% equity stake is fairly common.)
Not much explanation is needed when it comes to commercial banks. It’s pretty common knowledge that they are a major source of funding for entrepreneurs. Higher interest rates and sometimes collateral are part of these funding deals. The one thing you absolutely need to get bank funding is a formal, comprehensive business plan – and a lot of patience. The approval process can take months.
In the United States and around the world, city, regional (state), and federal governments typically budget some money to encourage development of small and medium scale companies. People who qualify for this type of money will be given grants. If you are a citizen of one of these areas and are able to fulfill the necessary requirements, you very well may qualify for a government grant. The obvious advantage of a grant is that it doesn’t have to be paid back. The down-side is that the application process can involve a lot of red tape. If you’re going for a grant to fund your startup, consider hiring a grant writing specialist.
Investment bankers supply this source of funding. If your company has grown in size and you are seeking funds in order to diversify or expand, selling shares to the public could be viable option for you. There is one major draw-back with this type of funding, however. Since your business will now become a publicly traded company, you are taking a risk of losing control of your company if something should go awry.
The bottom line is that lack of funds should never be an obstacle that stands between you and your dream of building a very successful company. By utilizing one or more of the options above, you have a good chance of getting your idea off the ground. And we didn’t even cover bootstrapping, which is a popular method of true entrepreneurs everywhere! How did you fund your business? Share your experiences in the comments below.
Adam Toren is an Award Winning Author, Serial Entrepreneur and Investor. He Co-Founded YoungEntrepreneur.com along with his brother Matthew. Adam is co-author of the newly released book: Small Business, Big Vision: “Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right” and also co-author of Kidpreneurs.