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Best Places To Go For Capital To Start Your Small Business

By Mark Riddix

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)

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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  • Quantella Owens

    Dear MoneyCrashers,

    RE: Best Places To Go For Capital To Start Your Small Business.

    Sorry, but this list is nonsense.
    I’ll go in order:

    #1)Friends & Family: Do you really want to be a at picnic with Aunt Sue while answering questions about about why your business plan isn’t working and how she’s suppose to retire now that you’ve lost her pension fund??

    #2)The SBA: The Wall Street Journal did an excellent article about the delays and problems with SBA loans not the least of which was the fact that that they pay after a project is complete. http://online.wsj.com/article/SB10001424052748704671904575194432835979148.html?KEYWORDS=sba+loans

    #3)VCs: Venture Capitalists reject 95+ out of every 100 plans they see. They usually only get really interested in deals which come to them through colleagues or that have the opportunity to be IPO material. Since the IPO market has slowed down, VCs are not a good bet. Entrepreneur Magazine had an excellent overview for people seeking VC money:http://www.entrepreneur.com/magazine/entrepreneur/2010/july/207186.html

    4)Angel Investors: Too Expensive. Ususally they want control, control…and did I mention control??? Are you prepared to give away your blood and the cup to carry it away in???

    5)Credit Unions: Actually, the best idea here. They do require membership. Try NCUA.gov to find one in your area. Usually residence is the easiest way to qualify, then employment, school etcetera.

    6) Community Banks: Second best idea, but most community banks are struggling with high commercial real estate defaults. See Bnet.com for an overview of the community banking situation: http://industry.bnet.com/financial-services/100010559/the-big-squeeze-why-community-banks-are-endangered/

    My best advice: raise the money yourself by selling something else first or use prosper.com if your credit is good enough.

    Hope this helps,

    Quantella Owens
    Virtuality LLC

    • Moniqkue1209

      Thanks so much for your info Mrs. Owens
      I could used some personal advice if you have time please email me at [email protected] Thanks alot

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