There are two things any small business needs to be successful: an idea and money. While coming up with a great idea can be a difficult challenge, sometimes coming up with money to fund the idea can be even harder. Let’s face it; most small businesses fail and it’s a large risk for anyone to invest in one.
TV shows like Shark Tank and movies like The Social Network show businesses looking for funding from venture capitalists or angel investors. However, these funding options are difficult to obtains and come with many strings attached. Here are a few more traditional funding options that shouldn’t be overlooked.
Friends and Family
It may sound silly, but friends and family are actually a great place to look for business funding if you are serious about your company. Friends and family know how smart you are and are familiar with your work ethic, so they have more information about you as an investment than banks or angel investors would.
However, small business owners should proceed with caution here. A business investment is very risky and may not be paid back. If the small business owner and the friend/family member can’t separate business from personal life, then it may be best to look elsewhere.
It seems like it should go without saying, but most people think of banks as places to open a checking account, get a mortgage, or apply for a credit card. Don’t forget that most banks are still in the business of lending money to entrepreneurs.
A bank will want to see a formal business plan, including projected revenue and expenses, a marketing plan, and more. However, if you have a good idea, a bank has vast amounts of money they are able to lend. The key to obtaining financing through a bank is persistence.
There are multiple banks offering small business loans, and it may take a few tries before an entrepreneur can convince a banker to take a chance on his or her business. Don’t get discouraged the first time you are told, “No.”
Borrow from Yourself
A small business owner may have equity built in his or her home, or maybe a substantial amount of money in retirement savings. While most people would prefer to leave this money alone, sometimes there aren’t other options. All small business owners should use some of their own money to start the company. The only question is whether or not to dip into home equity or retirement savings.