Funding – A Necessary Part of Your Business Plan
In Funding Ideas for Entrepreneurs – Part 1, we talked about Crowdfunding and using your 401(k) account as funding for your business. In Part 2, we discussed two more funding options to consider when looking to start your business – a Home Equity Loan and a Small Business Loan. (Note: These funding options are in no particular order.) Finally, we’ll discuss three more funding options: Seed Money, Cash and Traditional Bank loans.
Seed Money (Seed Capital) is another way to go. Your Costs may be low monetarily, but very painful in a personal way. It usually includes exchanging someone else’s money for an equity stake in your company. Can you live with that? The Upside is that the amount of money is comparatively small because you’re at the idea or conceptual stage. Typically, the money is used for initial operating costs. With the funding provided by multiple individuals, this helps minimize their risk. Repayment is negotiated and may include principal plus interest, and even shares of stock once the business is financially viable. The Downside is that if your business fails and you are unable to repay your investors, it will be harder to secure funding for future business ventures. Ouch!
Seed money can also be obtained through online crowdfunding. The investors will make their decision based on how strong your ideas is, and your skills and abilities. So, in addition to a great idea, you have to have mad writing skills to get your idea across as a winner! Sometimes Seed Money is just seeds made to look like money. You decide which works better for you.
Let’s talk Cash AKA Moolah. The Upside is that there are no upfront fees, no interest rate and no monthly fees. That’s the good news. The Cost is, let’s just say, very expensive. And the Downside is that there is nothing to leverage and your cash is 100% at risk. Now, whether you get that money from an angel investor or from a relative’s sock drawer, remember the Platinum Rule – treat others as they wish to be treated. That may mean monthly reimbursements or a yearly balloon payment But, remember to pay your debts, especially to family members who stepped up to help you get started, or family gatherings will become a mite awkward!
Finally, if none of the other funding options appeal to you, check out Traditional Banks. Upfront fees for funding the loan can include many fees: loan origination, business credit report, your credit report, loan packaging, appraisal, title search, title insurance…and the list goes on. The interest rate will vary. Consideration will be given depending on your credit history, amount borrowed, what if any collateral you have, etc. Upside is that you have a personal relationship with the bank; Downside is that you are again personally liable.
Don’t forget to identify, in all of your planning, the ongoing costs of doing business: utilities, inventory, insurance, rent, etc.
I hope I didn’t overwhelm you with all of these terms. So, take time to review these funding options. Then, call me and we can discuss your next steps. Remember, this is one step on the path to your dream.
“Dreams are today’s answers to tomorrow’s questions. ~ Edgar Cayce
If you don’t want to create a whole new business from scratch, then you might want to consider a franchise. I can help you find the right franchise business for you. You can contact me by email at email@example.com or by phone at (859) 866-3349. I can help you find the right funding option to help you become an Entrepreneur!