Financing Your Dream
Today I had a discussion about financing small business start-ups. As I’m developing my own business, I’m struggling with how I’m going to afford to get it started, without totally skimping on professionalism. There are multiple ways to finance a business – venture capital, angel investment, business loans (conventional and unconventional), yet most common for small businesses (especially in start-up mode) are personal financing (including credit card debt) and/or investments from friends and family. I’m taking the personal financing route – mostly called “bootstrapping” (article courtesy of Entrepreneur Magazine).
A personal financing tip that a current business owner gave me today is to create a promissory note when providing personal funds to finance my business (my form of start-up financing). When the business grows enough, I can be paid back instead of just considering that money an “investment” in my business. She wished someone would have told her that when she was starting out since so much personal money was put into her business – now she can’t pay herself back. She struggled with the tax implications of loaning money to your business though. You are supposed to pay taxes on the interest gained. I say, why charge yourself interest at all? Or, you could charge a minimal interest rate. At the end of the day, the interest is a small consideration when compared to the idea of gaining your money back.
Microloans are an additional option (that I might consider) for very small businesses loans. These are loans provide very little money (from $200 – $50,000, depending on who you ask) and are similar to microcredits which are small loans extensively used for financing businesses in developing countries. A caveat is that microloans may have higher interest rates than conventional loans. A few providers of these loans include: ACCION, Count Me In and Self-Help Credit Union. Additionally, some local governments provide loans of this type. You can check this State resources webpage by the Minority Business Development Agency (MBDA). Nationally, the Small Business Administration sponsors a microloan program – find your local provider here
Finally, you may be good enough to qualify for a grant – yes they do exist, but don’t pay for the information! – for your business. Typically, these grants are for inventions and can hand out a hefty amount of money, but you have to work hard to get it. A few grants include the Small Business Innovation Resource (SBIR). Beyond these, most grants are for non-profits. Alternatively, you could enter your business plan into a competition. Typically associated with business schools, this presents an opportunity to win prize money that can be used for your business. A few include The Global Social Venture Competition, Big Bang Business Plan Competition by UC-Davis, and the Miller Urban Entrepreneurs Series.
Financing Your Dream
Today I had a discussion about financing small business start-ups. As I’m developing my own business, I’m struggling with how I’m going to afford to get it started, without totally skimping on professionalism. There are multiple ways to finance a business – venture capital, angel investment, business loans (conventional and unconventional), yet most common for small businesses (especially in start-up mode) are personal financing (including credit card debt) and/or investments from friends and family. I’m taking the personal financing route – mostly called “bootstrapping” (article courtesy of Entrepreneur Magazine).
A personal financing tip that a current business owner gave me today is to create a promissory note when providing personal funds to finance my business (my form of start-up financing). When the business grows enough, I can be paid back instead of just considering that money an “investment” in my business. She wished someone would have told her that when she was starting out since so much personal money was put into her business – now she can’t pay herself back. She struggled with the tax implications of loaning money to your business though. You are supposed to pay taxes on the interest gained. I say, why charge yourself interest at all? Or, you could charge a minimal interest rate. At the end of the day, the interest is a small consideration when compared to the idea of gaining your money back.
Microloans are an additional option (that I might consider) for very small businesses loans. These are loans provide very little money (from $200 – $50,000, depending on who you ask) and are similar to microcredits which are small loans extensively used for financing businesses in developing countries. A caveat is that microloans may have higher interest rates than conventional loans. A few providers of these loans include: ACCION, Count Me In and Self-Help Credit Union. Additionally, some local governments provide loans of this type. You can check this State resources webpage by the Minority Business Development Agency (MBDA). Nationally, the Small Business Administration sponsors a microloan program – find your local provider here
Finally, you may be good enough to qualify for a grant – yes they do exist, but don’t pay for the information! – for your business. Typically, these grants are for inventions and can hand out a hefty amount of money, but you have to work hard to get it. A few grants include the Small Business Innovation Resource (SBIR). Beyond these, most grants are for non-profits. Alternatively, you could enter your business plan into a competition. Typically associated with business schools, this presents an opportunity to win prize money that can be used for your business. A few include The Global Social Venture Competition, Big Bang Business Plan Competition by UC-Davis, and the Miller Urban Entrepreneurs Series.
