How should I acquire loans, grants or investors for a business venture?
Grow Your Business, Not Your Inbox
Opinions expressed by Entrepreneur contributors are their own.All of these options, while viable, have their pros and cons. I think it's going to be up to you to determine which is right for you, based on your resources, contacts, credit score, how much money you need and what you are willing to risk.
The first thing that I would do is put together a thorough business plan. In this way, you'll get an idea of how much money you will need to purchase or lease your building space, utilities, employees, inventory, etc. Your investors are going to want an understanding of what your revenue projections, margins and their return on investment (ROI) will be.
The first place you should start is with your friends and family. Many small business owners are able to procure up to $50,000 in seed money from their immediate friends and family. I suggest starting here because capital generally comes fast and cheap. Your friends and family won't gauge you with high interest rates or demand large returns on their investment. And you can usually get their money with a simple handshake and minimal documentation.
The good news with grants is that they usually represent free money. The bad news is that it takes a lot of time to find the grant that fits your business, apply, and then wait for the results. I've seen this process take a year or longer.
Not to mention grants are usually extremely competitive. I would recommend you apply for a grant, because in many instances it costs your time and is risk free. However, I would not rely only on the grant money to get your business off the ground--you could be waiting for a long time.
A bank loan is another option. Assuming you and your cosigner have good credit scores and a good business plan, you can probably get a loan. But it doesn't come without a cost. For instance, your cosigner will more than likely have to offer something as collateral in case your business fails. This option will depend on how much you and your cosigner are willing to risk.
The third option you mentioned, professional investors, isn't exactly easy to come by. At a minimum you need good contacts, a strong business plan and a way for the investors to make money--generally in the form of you selling your business. This type of capital is fairly expensive and may cost you control of your business. For a small-business owner, unless you plan on growing into a regional or national retail chain, I personally do not recommend it.
One thing I would also consider is the notion that you may not get the capital you need to start a brick and mortar retail store. Can your business be started on the web at first? A serviceable e-commerce website shouldn't cost more than $10,000 (and this is a gross overestimate) and having storefronts on eBay and Amazon can be a great way to drive sales at first. I would view this model as a cost-efficient way to get your business started and test your market viability while using the resources you currently have.