You may have a great idea for a new product or service, but you also understand that you simply don't have the money to get the business off the ground. The following are four tips to raise your starting capital. There are both pros and cons to each method, so carefully consider what is best for you.
Apply for a commercial bank loan
Although this is often a first thought, you need to understand that banks are hesitant to loan to start-up companies. The risk of the business failing is high, so they will want to have the loan secured by an asset such as home equity. A bank, like Bank & Trust Company, may still be hesitant to loan money even with good collateral, so you will need to formulate a good business plan and provide evidence of your experience in the business area that you will be engaged in.
Offer a stake in the company to investors
You can sell a portion of the ownership of the company to raise the starting capital. You can tap into your friends and family members; many people do. However, if your business fails, it can place a strain on relationships with friends and family when they lose some or all of their money. If you decide to go down this road, you will want to invest some of your own money in your company, so everyone knows that if they lose money, so will you.
Tap into an angel investor network
This type of network is composed of people who are often retired and have an expertise in a particular area of business. They not only provide start-up capital for your business, but they often can offer guidance because of experience gained from operating a successful business themselves.
Pay as you go
Depending upon the nature of your product or service, it may be possible to work at it on a low budget. You may be able to save money on office space by working out of your home. If you have inventory, you may be able to store it in your home or rent a storage space. Many businesses start this way. Some of them can be done part-time while you keep a full time job. The start-up cost for this type of business may only be a few hundred dollars.
Before you attempt to use any of the above tips on raising capital, make sure you know how much money you need to launch your business. One of the reasons so many companies fail is insufficient capital. Determine what you need, then decide what approach to take in financing your start-up company.