Financing Your New Home Business
Craig Warren
https://YourHomeBizCoach.com/

A question I get asked a lot.

What is the best way to finance a new business venture?

Typically, “So, do you ever invest in new business ventures?” follows this question.

There is no “best” way to finance a new business, according to the response, and I do invest in new business endeavors, but I’m afraid I can’t today because I left my checkbook in my other suit.

The truth is that there are many different methods to fund a new business, and the optimal option for you will rely entirely on your product, market, financial needs, burn rate, and—above all—your financial and personal circumstances.

In light of that, these are some of the most popular methods for funding a new venture without approaching Tim for a loan.

Every technique has advantages and disadvantages, and some—or perhaps most—might not be appropriate for your particular circumstance.

Don’t plunge in headfirst unless you’re certain you’ll land on solid footing, regardless of the financing option you decide on.

Instead, carefully research the ups and downs.

Investments and Savings

Your personal savings and assets should be the first resource you think about using.

When it comes to business, I’m a big supporter of self-financing because it absolves you of liability in the event that your venture fails.

Your money will be lost if things do fail.

There’s no reason why you should risk someone else’s money if you wouldn’t risk your own.

Family and Friends

Many entrepreneurs seek assistance from friends and family after using their personal funds and investments.

This is a good idea for some people, but my motto is to never borrow money from someone you have to have Thanksgiving dinner with.

Lending money that is never repaid is the biggest source of conflict in a family.

Observe that I use the word “lending money” instead of “investing money.”

Venture capitalists make financial investments.

You get a loan from your family.

Even if they claim they won’t, they will still anticipate it to return eventually.

Recall that a loved one is making an emotional investment in you when they contribute to your business.

Telling parents that their favorite kid lost their entire life savings because his business failed would be difficult.

Credit Cards

I made the grave mistake of using credit cards to finance my first business, which might have resulted in a business failure and left me with thousands of dollars in credit card debt that would have taken until 2099 to pay off.

In the end, it worked out for me, but if you choose to finance your business with plastic, be aware that you will be paying exorbitant interest rates on the money you borrow, and unless you are really lucky, you will be paying for that money for many years to come.

Get a Farm Mortgage

After being rejected for a bank loan, many entrepreneurs use the equity in their houses to finance their firm because bank loans are nearly impossible to obtain without collateral and a history of successful business ventures.

The financial dangers are just as great even though this makes more sense than starting a firm on a deck of credit cards.

This is an excellent source of low-interest funding to get you started, and the interest may be tax deductible; check with your accountant to be sure.

However, you will still have to repay this money whether or not your firm succeeds.

Angel Investors

Rich people who invest in start-up businesses in exchange for a stake in the business are known as angel investors.

Angel investors typically give the seed money needed to launch a business and are the first official investors in the enterprise.

While some angel investors view their investment as a license to “assist you” in managing and making decisions, others will just write you a check and let you handle your firm on your own.

If you take angel funding, make sure that both parties understand the terms.

There are always conditions attached to angel funding.

Before you accept an angel’s check, be cautious to find out if those strings are in the shape of a bow or a noose.

Investors in venture capital

To angel investors, venture capitalists are like pit dogs to Chihuahuas.

While not all venture capitalists are enormous, terrible canines, they do have strong jaws that can snatch up your company and spit it out if things don’t work out.

There is much legal paperwork, locks, and chains attached to venture capital funding.

In every business they invest in, venture capitalists always have the upper hand.

That’s the cost of gaining access to venture capital funds, and that’s the way it operates.

Don’t jump at the first bone a VC dangles in front of you if your company reaches a point where VC funding becomes a feasible possibility.

Several VCs will support your idea if one does.

Present to several VCs, and before you accept the check, thoroughly weigh each offer.

Just keep in mind to make prudent use of the funds regardless of how you choose to fund your company.

Avoid purchasing $1,000 Hermann Miller chairs and $1,500 plasma displays.

Make a detailed strategy for how the funds will be utilized and repaid.

Additionally, keep in mind that you will ultimately own a larger portion of the company the more you can shoestring it.

Resource Box

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