Five Options For Start Up Funding

Posted: 28th June 2016 07:46

It takes a decent amount of money to start a business. Where that money comes from depends on each individual business owner. In this post, we will walk you through some of the many options you have to fund your new business. While you may not need all of these options, chances are you will take advantage of a handful of them.

#1. Yourself

The first place you can look for funds to start your own business is the person in the mirror. After all, if you aren’t going to put up any of your own money, how can you expect others to trust you? By not putting any of your own money in the game, you are essentially saying you don’t believe in the product or business even if you do actually believe it will work.

You have a handful of options when it comes to putting your own money towards your business. You could raid some investment accounts. You could take money from savings, or you could drastically cut back on expenses and save every penny you possibly can.

#2. Friends and Family

After you use all of your own money, you probably still need some more. The next logical place to go is friends and family. Before you start asking, make sure you have an agreement set up. If you know anything about money, it is that you never lend it to friends and family.

While you are asking for a loan, you want to back it up with paperwork. Draft an agreement that spells out what they are getting in return for their investment, either a share of the company or a repaid loan with interest. Then make sure you both sign and follow it. Doing this will make things less awkward when your business takes off (or even fails).

#3. Crowdfund

Another source of potential funds is from strangers. But not just any stranger, those looking to make investments in startups. There are many websites out there that allow you to list your business idea in order to find investors.
You will have to offer them something, and most businesses offer a free or reduced price of a future product. Before you go this route however, make sure you read over the fine print so you fully understand what you are getting yourself into.

#4.  Structured Settlement

Not as common as the options above, is selling all or a portion of a structured settlement. Let’s say you were in an accident and were awarded with an income stream for the next 20 years. This might be great for most people, but since you are starting a business, you need to get your hands on all of the money now.
There are websites that will buy the income stream from you for a lump sum payment. The great thing is that you can sell all or just a portion of the income stream. If you only sell a portion, you will get a lump sum and still collect a smaller income every year.

#5. Loans

A final option is to take out some loans. While it is an option, it is last for a reason. It is hard enough to start a business and have it last, and adding in another monthly payment just squeezes the profit margins even more.
This isn’t to say a loan should be avoided, it is just that having loans increases your costs and could hurt you personally if the business fails and your business wasn’t set up properly. Before you take out a loan, be sure to talk to your accountant about the pros and cons of doing such a thing.

In the end, your options for funding a new business are wide open. You should certainly start with your own money however as this will ease some potential investors fears about you not having skin in the game.
If you are smart about how you fund your new business, it could aid you in helping to make your business a success.