Personal assets may be used to capitalize your business. Savings, retirement funds or the sale of assets (e.g. garage sales, pawn shops) and investments may be sources of financing. Borrowing against the equity in your home or using consumer credit cards are possibilities, too. There are risks involved with borrowing against home equity, which should be carefully weighed with the assistance of a qualified professional.
Friends and/or family members may loan you money to start your business OR they may invest their personal savings or other assets in your business. Terms of the loan or the investment agreement should be decided in advance and should be documented.
Regulated Financial Institutions (banks and credit unions) provide a variety of financial services to individuals and small businesses including lines of credit, term loans and mortgages. New venture financing is primarily based on the borrower’s ability to repay the loan. As the business grows, personal assets and financing will still be heavily considered, but the bank will begin to rely more on the business’s ability to generate revenue for payments.
Your loan proposal will be evaluated on your:
Businesses that supply your business with inventory and supplies may be willing to extend you credit. Generally, inventory or supplies are delivered to you under the agreement that you will pay the supplier in 30 to 60 days. As a new venture business without a track record, however, this will be an extremely difficult source to secure unless you have had a good prior working relationship with the supplier.
Venture Capitalists provide equity investments to businesses experiencing rapid growth — 50% per year or more and revenues of $20-50 million in 5 to 7 years. In addition to firm ownership, venture capitalists will also want management input in the form of board seats or executive positions.