Do you have a great idea for a startup but don’t have the money to get it started? Well, don’t let that stop you! Now is a great time to start your own business. Commercial banks may have cut down on lending to small businesses that need capital, but there are a number of places that you can turn to for much needed funding for your business idea. First, you need to get over the fear of starting your own business.
Once you’ve decided to take the plunge, here are 6 places that you can turn to in order to fund your small business:
1. Family and Friends
Getting an investment from family and friends is often the cheapest source of capital. There are plenty of cases in the history of successful businessmen and women who started their businesses with the financial backing of family members and close friends. Warren Buffett started a multibillion dollar business with investments from his family members. Todd Greene of HeadBlade started a multimillion dollar razor blade company with $150,000 in startup capital from his friends and family. Be aware that we don’t necessarily advocate this to be your first option, because it can often complicate the relationship you have with that person if they end up losing money from your business venture. There are some potential consequences that support the argument why you should not borrow money from friends or family.
2. Small Business Administration
If you are looking for a loan, check out the Small Business Administration. The Small Business Administration is the largest backer of businesses in the United States. The SBA does not directly lend money to businesses but acts as the guarantor for loans to businesses. Banks will take a chance on a small business if the SBA guarantees the loan in case of a potential default. The SBA can also help you create your business plan, financial statements, and all other documents needed to secure financing.
3. Venture Capitalists
Do you have a great idea for a company like Facebook, Google, or eBay? If so, then contact a venture capitalist. Venture capitalists love to fund innovative startups with high growth potential. Venture capitalists inject seed capital into the business and look to get paid off later when the business begins generating profits. The seed capital is often pooled money from various businesses and investors. One of the great things about using venture capital is that many times you can retain full ownership interests.
4. Angel Investors
Angel investors provide a similar function to venture capitalists except that they invest their own money. An angel investor is either a specific company or an individual that uses their own capital to fund your venture. Since angel investors are harboring all of the risks themselves, they are more likely to ask for an ownership interest. Angel investors can meet a wide range of funding needs from a few thousand dollars to hundreds of millions of dollars.
5. Credit Unions
Is there any service that a credit union does not provide? Credit unions are a great place to look for business loan financing. Credit unions are always interested in funding small businesses that will directly impact the surrounding community and their field of membership. Credit unions are known for offering the most competitive loan rates in the financial industry.
6. Community Banks
Your big commercial bank may be cutting back on small business loans due to default fears but community banks are not. Community banks are one of the few places in the banking industry that small business owners can still turn to for capital. Most community banks did not leverage themselves to death like their big banking brethren and thus have more money available to lend. Community banks are one of the few places where you can still go and develop a close relationship with your local banker.
(Photo credit: Shashibellamkonda)