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How to Get Funds to Start your Own Business

Updated on January 17, 2011

Angel Investors Provide Funds to Start Businesses

Do you want to start your own business? Many people are interested in this opportunity because it has such tremendous financial and personal benefits. However, a lot of people who want to start a business feel like they will never be able to because a business requires startup money that they just don’t have. It’s true that it can be tough to find the funds to start your own business. It requires time and effort on your part. However, it is possible to get those funds. And you’re going to need to put time and effort into your business to make it work anyway so you might as well start the process by using your energy to get the funds to start your business.

Saving up to start your own business

The most obvious way to get the funds necessary to start your own business is to save up until you have enough. This isn’t necessarily the easiest or quickest way but it’s a way that almost all of us can do. To save up for your own business you should calculate the approximate startup costs for your business. Look into all of the ways possible to reduce the cost of startup. Then create a spending budget that allows you to save up the money that you need to cover those costs. If you are committed to launching your own business then this is a do-able way of making it happen.

Getting loans to start your own business

Saving up the funds to start your own business is a financially smart move. However, some people want to get going more quickly and so they turn to loans to help them start a business. This is also a viable way of getting the money that you need to launch a business. Some of the different types of loans that you should consider if this is an option that you’re thinking about using include:

o   Government loans. The federal government sometimes offers business start up loans that offer great rates. One place where you might want to start looking for those loans is with the Small Business Association. They have a program in place that offers loans to small businesses including those that are just starting out.

o   Home equity loans. If you own a home then you can take out your loan in the form of home equity. You may be able to get great rates on the loan. However, you should realize that you’re taking a big risk when you do this. If your business doesn’t succeed then you may not have the money that you need to pay your mortgage costs and you could lose your home. For this reason, home equity loans aren’t an ideal option to secure the funding you need to start your own business.

o   Personal loans. You may instead decide to get a personal loan to cover your startup costs. You can get a personal loan through your bank. Alternatively you can use a social lending club to secure the loan. Note that your ability to get a personal loan at a good rate will depend on your credit score.

o   Private loans. This means that you get the loan from someone that you know (like a parent). This usually is a no-interest or low-interest loan with flexible repayment terms, which is good. However it does mean your mixing money into your personal relationships and that’s always risky.

Using a credit card to start your business

Some people can’t qualify for loans but they do have credit cards that they can use to fund the launch of their new business. This is obviously not an ideal choice. Drawbacks of using a credit card to start a new business include:

o   The interest rate is usually high. Unless you are able to get a new credit card with a zero percent or low percent interest rate for an extended period of time then you’re going to pay a lot to borrow your startup money from the credit card companies.

o   You are taking a huge risk. If your business doesn’t rapidly become at least moderately successful then you are going to have trouble paying off your credit card bills each month. This could mean that your new business costs you money instead of earning you an income.

o   It can have a huge effect on your credit score. As soon as you begin making late payments on a credit card, your credit score goes down. This will make it even more difficult to get good loans in the future.

If you are starting a business that only requires a small investment and you have a good low interest credit card that you can use to cover those costs then this may be an option. However, it’s not a top choice for getting the funds to start your new business.

Getting grants to start a business

It isn’t easy to find grants to start a new business. However it is possible especially if you are starting a business that will have some benefit for your community. Look to the local, state and federal government for information about getting grants to start a business in your area.

Finding investors to start a business

Finally another way that you can get the money that you need to start a business is to find people who believe in you to invest in the business. Angel investors are a common source of income for new businesses, for example. They are small groups of people who give you the money that you need to start your business. In exchange, they typically get a percentage of the profits that the business makes. The drawback to this is that you then become accountable to other people for reporting about the success or failure of your business. The benefit is that you get cash up front from people who have it and who want to help your business succeed.

Comments

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  • carla_easley profile image

    carla_easley 

    7 years ago from Richmond, VA

    Thanks so much for a very informative hub. I'm actually in the process of seeking funds to start a business.

  • ESG Consulting profile image

    ESG Consulting 

    7 years ago from Canary Wharf, London, Bromley and Kent

    Very well informed Hub. One of the things I have done, especially in this financial climate, is to take time to learn basic skills which will help me and save me money, such as web design, networking and of course hubbing! It's all out there for free if you take some time to sift through.

  • profile image

    steve 

    7 years ago

    I had some struggles with my own business and I got some real inspirations after reading this article

    Jon Braun Jon Nestorovic avoid

  • Hello, hello, profile image

    Hello, hello, 

    7 years ago from London, UK

    Yhank you for all these good and helpful ideas.

  • Simone Smith profile image

    Simone Haruko Smith 

    7 years ago from San Francisco

    Excellent advice! I'm so use to the idea of getting funding from external investors that it never really struck me that someone would save for their own business ventures, but that's a fabulous idea. Much better than starting a business with credit cards - yikes!!

  • dallas93444 profile image

    Dallas W Thompson 

    7 years ago from Bakersfield, CA

    Your professionalism shows: well organized and usefull information. Thanks!

  • KoffeeKlatch Gals profile image

    Susan Hazelton 

    7 years ago from Sunny Florida

    Kathryn, well done. You have some sound logical suggestions for places to obtain funds to start your own business. Great job.

  • shaekelly profile image

    shaekelly 

    7 years ago from Alabama

    This is a great hub, very well organized. I don't know how u read my mind seriously. I am thinking in terms of starting my own business, I am using your hub as a reference page.

  • Marie-Renee profile image

    Renee 

    7 years ago

    Another great and very useful hub. Yes, starting up a business is really hard especially if you don't have enough for capital. It is a great risk so doing a feasibility study or research on that business is important before you spend money, effort and time.

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