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How to Get Money to Start a Business

Updated on June 15, 2012
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You have a great idea for a business and now need to find money to start it. This is not easy. Although it is rather simple to get a house or car loan, and while successful businesses can take out loans without much hassle, getting money for a start-up is rarely an easy task.

Before you start looking for money, it is important to have a strong business plan in place and know exactly how much money you will need to launch the business and operate it until it start making money for you. Too many entrepreneurs fail because they underestimate the amount of capital needed to make their business a success.


The Three F's of Funding: Family, Friends, and Fools

The best people to contact when starting a business are family, friends, and fools. Sometimes a person may be all three of these. The three F's are usually the people who will fund an idea even if it has a high potential to fail. While we hope your business venture is a notch above the rest, statistics state that it will not last longer than a year or two.

The main point here is that banks and venture capital firms will not provide money to someone who only has an idea. An idea is worth a couple of cents. Until financial institutions see a serious investment on the part of entrepreneur, with high odds of success, they will not be interested in financing the concept.

Fortunately, there are plenty of other ways to find money to start a business.


Entrepreneurship is Difficult

NOTE: The majority of entrepreneurs make less money than if they actually worked for someone else. An entrepreneur will often work 60+ hours a week with no guarantee of actually making money. Do not start a business thinking it is an easy way to get rich. Even the greatest ideas take a lot of time and energy.

Getting Money to Start a Business: The Steps

Although the financial struggles involved in starting a business can be overwhelming, by following the steps below, you may realize that financing your project is not nearly as difficult as you first anticipated.

1) Have a solid business plan with estimated costs: Having a game plan from start to success, along with knowing what costs will be anticipated, will help the entrepreneur understand the task at hand. Additionally, by showing potential investors the costs and expected results of the company, not only will they be more likely to invest, but the entrepreneur can be more assured that he/she is not going to lose the investors' money.

2) Consider implementing the business in stages: Do you need to have a storefront or can you start by selling online? Will a company vehicle be necessary or can your old pickup work? By starting with the minimum needed to begin making a profit, the business can pay for itself.

3) Barter services: Rather than paying for everything, are there some things that you can provide in exchange for services your business needs? Are you starting a restaurant? Perhaps the graphic designer who creates your website would enjoy receiving a free meal for a week. Consider trading your services and products to help your company get started.

4) Spend your own money: Are you going to put the necessary energy into making the business a success? If your desire is to spend other people's money just in case the business fails, then I doubt if others should invest in your idea. After all, if the founder is preparing for the business's failure from the start, why should other invest? Show your commitment to yourself and others by using your own money to launch the business.

5) Find those Family, Friends, and Fools: Family can be a great place to start, as they may be the most forgiving if a venture does not succeed. Friends and strangers are a bit riskier, although they may still be willing to help out a little. There are two important considerations before taking money from individuals: 1) Make sure that they know the risk involved and the relationships will not be destroyed if the business fails, 2) Only allow them to lend money that they could live without - you do not want to be responsible for sending someone to the poor house.

6) Look into peer lending sites: There are many websites such as prosper.com and lendingcircle.com that have been starting up. These sites allow for groups to lend money to individuals for specific projects. Rather than one person investing $10,000, one thousand people can each invest $10 - providing a safer environment for investors. Although these sites limit the kinds of projects they accept, it may be worth looking into.

7) Sell products/services in advance: You need to be very careful about offering to provide a service unless you are confident that you will be able to make it happen. However, if you know that you will be able to make good on your promises after receiving the necessary funds, consider pre-selling your product. This will get you the needed start-up capital and provide you with customers right away! Consider giving a discount or other benefits to anyone who is willing to work with you from the beginning.

8) Wait: If you do not have the money necessary to make a business a success and you are unable to convince people of it's value, then it may be a good idea to place the business on hold. You do not want to start something and have to stop before it is profitable. Consider working, saving money, and developing a stronger business plan to launch the company in the future.


Would you be willing to start your own business even if it meant earning less money than you currently make?

See results

Getting Venture Capital

Once a business is successfully operating, it may be necessary to acquire more funding for the next move. This is when an entrepreneur should start looking for venture capitalists. Venture capital is not easy to acquire as there are many great ideas constantly being thrown upon wealthy investors. However, by using services like gobignetwork.com, an entrepreneur may be able to find the needed capital to make the business a success.

But until the business is up and running, already making a profit, using these small methods for making money will be necessary.

Good luck as you continue to develop your business and please share with me any businesses that you have successfully launched - I would love to check them out!


Comments

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    • profile image

      raty 4 years ago

      i need some money to run business. Could someone help me please?

      i has a good plan!

    • lindacee profile image

      lindacee 5 years ago from Arizona

      Like the steps you laid out for getting the funds for a new business. I think sites like Prosper.com are a great option, especially if you're starting small with an online business or the like. Well done!

    • Simone Smith profile image

      Simone Haruko Smith 5 years ago from San Francisco

      Hahaa, great tips! I love the three Fs. Those are new to me.

      Should I start my own business someday, my preference would be to fund ALL of it independently- that's why I'm saving now (I actually have a separate fund I'm putting together for starting a business). Clearly, though, there are many ways to skin a cat!

    • Robert Erich profile image
      Author

      Robert Erich 5 years ago from California

      @angela: I'm glad you enjoyed!

      @dmop: I'm sorry the economy hit you hard - I wish you the best as you start out again.

    • dmop profile image

      dmop 5 years ago from Cambridge City, IN

      I am working on starting small and growing from there as we speak. I have been there before with a fairly successful business, but the housing market crash made profits nearly impossible, so I got out. Hopefully I'll get there again. Good article, voted up and useful.

    • Angela Brummer profile image

      Angela Brummer 5 years ago from Lincoln, Nebraska

      Lots of great info here. Thanks so much for sharing... first rate hub!

    • Robert Erich profile image
      Author

      Robert Erich 5 years ago from California

      @neeleshkulkarni: Congratulations on your business success! I love your quote "Start small and grow into luxury". That is a great mantra and one that I may start using. And YES, hahaha, stealing is definitely another great option.

    • addingsense profile image

      Akhil S Kumar 5 years ago from kerala

      Oh,yes.you are right

    • neeleshkulkarni profile image

      neeleshkulkarni 5 years ago from new delhi

      blessed to be in the 2% that do not fail even after 26 hears of starting the business and who though not doing spectacularly well has surely never starved nor been unable to afford a small holiday with the wife i can only say that points 2 and 3 are most important particularly if you are spending your own money.

      To my mind most businesses fail because we tend to overspend on the most superfluous of things and have no money left over for the vitals in the end.If the curtains in the new office take priority over the screwdrivers and wrenches and the computer has to be the top end model while the stocks run out for lack of funds - then the business is bound to fail.

      Start small and grow into luxury is the mantra i believe in.

      and by the way you forgot one important way to generate funds- steal them!!!!!

    • Robert Erich profile image
      Author

      Robert Erich 5 years ago from California

      @buyabiz: Very true, good ideas are often a bigger problem.

      @spartucus: Thanks! It's great to use a bit of humor.

      @greatstuff: You know, marrying rich is a much easier way to do things I suppose. I might still have to look into this...

      @addingsense: Thanks for stopping by. I think spending others money is good and necessary, it's just something we need to be careful about.

      @Sonny: yep, the 3 F's are completely necessary for business start-ups!

      @Om: I'm glad you enjoyed a couple of the tips. Thanks for stopping by!

    • Om Paramapoonya profile image

      Om Paramapoonya 5 years ago

      Nice advice. I think #3 and #7 strategies are very nifty, a little unorthodox but can be quite effective. Thanks a lot for sharing. Thumbs up!

    • profile image

      Sonny Siano Ellar 5 years ago

      this hub will help people who are interested in in putting up a business of their own to figure out how to deal with some important factors in entrepreneurship. yes funding is the hardest part and the hilariously described as 3Fs are the only ones you could most likely turn to. this is wonderful!

    • addingsense profile image

      Akhil S Kumar 5 years ago from kerala

      hi Robert Erich ,

      i like the three F's "Family, Friends, and Fools". the hub is really informative. thanks for sharing with us. what about spending others money to our business? is it difficult if they are relatives?

      i welcome you to check out my hubs too,

      good day

    • greatstuff profile image

      Mazlan 5 years ago from Malaysia

      I too laughed at your 3F's. The fools are the one that we should be thankful, as they believed in us. Family and Friends sometimes are 'obligated' to help. From your poll, looks like majority prefer to marry rich..hmmm

      Great info here Robert, keep it up. Voted useful and interesting

    • spartucusjones profile image

      CJ Baker 5 years ago from Parts Unknown

      Great hub! Many insightful tips. I also appreciate how you use humor as a teaching tool.

    • BizVT34 profile image

      BizVT34 5 years ago from USA

      There are many ways and sources to fund a good plan/idea. In my experience I've seen about 300 plans for "nothing new" businesses for every 1 plan that is a good, unique and well thought out idea.

      The problem isn't a lack of money to fund good ideas, the problem is a lack of good ideas to fund.

    • Robert Erich profile image
      Author

      Robert Erich 5 years ago from California

      That is probably a smart move. Especially with a family to take care of. Who knows, maybe one day in the future you'll have the extra time and money to give it a shot!

    • leahlefler profile image

      Leah Lefler 5 years ago from Western New York

      There are great pointers here - I love the idea of bartering services to receive items your business needs. My husband and I thought of starting a validation business (for validating instrumentation used in labs), but decided we liked the paid vacation time and other corporate benefits - then we had children and decided it simply wasn't worth the risk of failure.

    • Robert Erich profile image
      Author

      Robert Erich 5 years ago from California

      It's true! The 3 F's are hilarious but so true. And thank you for your comment, I certainly hope it gives people a hand indeed.

    • internpete profile image

      Peter V 5 years ago from At the Beach in Florida

      Haha, I laughed at the 3 F's. But it is really so true. Great hub here, it can be very challenging to just raise the money for starting a business, not to mention actually starting and running the business. I think this can help a few entrepreneurs out there.