There are many inventive ways to raise money for your company. Here are a few popular and original methods for funding brand-new or ongoing business initiatives.
Family and Friends
- Write a business proposal as if you were going to write one to get a loan from a banker. Discuss what the business is doing, the market demand for your product or service, and how you intend to market your product or service, including financial projections: in what time frame do you anticipate the business will turn a profit? Includes financial reports and tax returns.
- State how much money you need, what the funds will be used for, and the terms of the loan, such as interest rates, and how you intend to repay the loan, whether this is in a lump sum or scheduled payments. You must also state whether the loan is secure and that if you cannot repay the loan, the lender will have a percentage of ownership in the business. In making your proposal more attractive to lenders, you might consider having a promising note or agreement that states financial terms, scheduled payments, and the right to the business if the letters are not paid.
- Don’t forget the tax benefits of using promissory notes. If for some reason, you are unable to pay the loan in full, the lender will be entitled to a tax deduction known as “bad debt.” Warren Buffet, now the second richest person in the world with an estimated net worth of 40Billion, raised $ 105,000 for his first business from 7 partners, two of whom are his sisters and aunt.
Equity in Exchange for Expertise
If you have a brilliant idea, you may be able to find someone else whose service is willing to receive some form of equity in return. These could be legal services, engineering services, or marketing services. The possibilities are endless. For example, many new startups require legal formation, such as becoming a company. You can contact a licensed attorney in your area who specializes in startups; many attorneys, if the idea is one where the potential for future profits is excellent, will agree to postpone legal labor costs and will ask you only to pay fees in advance, such as filing fees. You can offer anywhere from 1-2% to delay legal fees and agree to pay legal fees once funding is obtained.
People want to be apart from the next big thing. By providing an attractive proposition with reasonable terms and conditions, you can create a winning business relationship that allows your company to grow and be successful. Countless startups have taken advantage of this financial strategy in launching their businesses. When Google was just an idea, Google’s Larry Page and Sergey Brin had convinced their owners to take a stake in their company in exchange for free rent.
Commercial Loans
In applying for a commercial loan, there will be many paper requirements, which generally include your business plan, financial reports, credit reports, consolidating documents, and tax returns. Commercial banks will evaluate your business against 5C credit:
- Capital – how much of your own money you have in the business
- Character – your reputation in the business. They will look at your credit score and credit history, such as making payments on time, the amount due to other creditors, and if you have a rating or a lien.
- Capacity – your business’s cash flow and ability to repay loans.
- Collateral – assets your business owns, such as equipment or real estate, as security for loans. The Collateral Potential is someone else’s ability to repay the loan if you don’t.
Small Business Administration Loan (SBA)
If you cannot get a commercial loan, you can apply for an SBA loan. A condition of using an SBA loan is that you have to find a loan from a conventional lender and cannot get a loan with reasonable terms. The SBA guarantees 75% or up to $ 750,000 of loans made by private lenders. As a business owner, you must ensure the loan personally and show you sufficient cash flow to pay off the loan.
Angel Investors and Venture Capital
Several startups welcomed Angel’s financing. Financing for startups is a specialty of angel investors. When there is too much danger for the bank and insufficient potential for the venture capital business, they are frequently more eager to invest in concepts. They often invest modest sums, ranging from $100,000 to $3,000,000, and are prepared to hold their investments for a long time, at least five years. A business will frequently begin with an angel investment; if the company is to be a high net worth one with expected huge earnings, a venture capitalist will likely be involved.