Finance

The Basics of Startup Financing

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So you've come up with an idea for a business? Congratulations! Now you need startup financing - that initial infusion of money needed to turn the idea into something tangible. And that's where it becomes tricky.

When you are just starting out, you're not at the point yet where a traditional lender or investor would be interested in you. So that leaves you with selling cherished assets, borrowing against your home, maxing out credit cards, dipping into a 401(k), and asking loved ones for loans. There is a lot of risk involved, including the risk of bankruptcy with your personal finances and soured relationships with friends and family.

Related: How to Keep Family and Friends Loans Strictly Business

This is the hard part behind starting a business -- putting so much at risk. But doing so is the rite of passage to both success and failure. It's what sets entrepreneurs apart from people who collect paychecks.

A major key is to ramp up initial operations as quickly as possible to get to the point where outside investors can see and feel the venture, as well as understand that you took some risk getting it to that point.

Some businesses can also be bootstrapped. They can be built up quickly enough to make money without aid from investors who might otherwise come in and start calling the shots.
With so much at risk, it is important to have a strong business plan in place, and to seek out advice from experienced entrepreneurs and experts -- people who might also invest in your business someday.

Seek out local entrepreneurship advice programs. One place to start looking is the SBA's website, which has a search engine for finding local Small Business Development Centers, SCORE chapters and other resources

What's Next: Once you get over the initial hump, it is possible to seek out funding sources available to more advanced startups and early stage companies.

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