Where the Funds Are

Billions--yes, billions--of dollars are available throughout the country for start-up ventures. The trick is knowing where to look . . .

Getting a business out of the starting blocks can be daunting for a first-time entrepreneur. From choosing a location to hiring your first employee, the list of important considerations seems endless. But unless you're independently wealthy, one looming thought will override all the others: Where am I going to find the money?

Billions of dollars are available to businesses-start-ups included-from a variety of lenders and investors nationwide. You've got to be diligent and you've got to be flexible. But entrepreneurs committed to getting their businesses off the ground will find the necessary financing, experts contend, if they investigate and are open to all options.

In this high-tech age, those options are broader than ever. The Internet alone provides access to funding through venture capitalists, finance companies, banks, brokers, angel investors and mortgage firms. Then there are insurance companies, leasing companies, the Small Business Administration (SBA), community development agencies, franchisors (for those buying franchises) and more. Before surfing the Web or plunging into unknown waters, however, entrepreneurs should look closer to home.

Inside Sources

"Internal funds are by far the most important source for a start-up," says finance and economics professor Glenn Hubbard of Columbia Business School in New York City. Indeed, business owners often use personal savings, liquidated investments, pension funds and even consumer loans.

Consumer loans are generally secured by using assets as collateral, and homes are perhaps the most common assets used by start-up entrepreneurs. Putting up your home for collateral allows you to refinance an existing mortgage (perhaps at a better rate than you're currently paying), get a second mortgage or secure a home equity loan or line of credit. Be reminded, however, you may lose your home if your business fails and you default on the loan. As an option, consider pledging other assets as collateral, such as real estate, life insurance policies, business equipment and furnishings.

Other inside funding sources available to entrepreneurs include family, friends and business associates. Usually private and informal in nature, loans from sources close to you feature favorable terms without the need to pledge assets. On the other hand, such loans can lead to problems which may threaten long-term personal relationships and even your business. To avoid these problems, put all loan arrangements in writing-no matter how close you and your benefactor are. Don't forget to draft a formal agreement that stipulates all terms, clearly indicating that the money is a loan and doesn't impart any control or ownership of the business.

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