How to Get Money to Start a Business: Guidelines and Resources

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Sections of this topic

    How to Get Money to Start a Business: Guidelines and Resources

    © Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.

    Sections of This Topic Include

    Preparation

    First, Get Ready for Getting the Money
    Then Do a Business-Startup Business Plan

    Estimate How Much You Need

    Then Estimate How Much Money You Need to Start Your
    Business
    Then Identify Your Best Sources of Funding For
    Your Startup

    Traditional Sources of Funding

    Traditional Sources of Funds to Businesses
    Angel Investors
    Bootstrapping
    Confounding and
    Friends
    Loans – Commercial Bank Business Loans
    Loans – Credit Cards
    Loans – Lines of Credit
    Loans – SBA-Backed (Government Loans)
    Venture Capitalists
    Trade Services

    Non-Traditional Sources of Funding

    Non-Traditional Sources of Funding for Businesses
    Business Incubators
    Grants
    Loan Collateralized by Accounts Receivable
    Microloans
    Peer-to-Peer Lending

    Resources for Free Assistance

    Sources of Assistance With Your Startup

    Also consider
    Related Library Topics


    PREPARE TO GET FUNDING

    First, Get Ready for Getting
    Money

    Be Patient With Yourself Now

    There are numerous steps involved in starting a business, as well as in the
    planning and getting of sufficient funding for your new business. Investors
    will notice how carefully you were in doing those steps. You’ll end up doing
    those steps in a proactive and planful way if you do them now — or you’ll do
    them in a highly reactive and chaotic way later on. Take it one step at a time.
    Remember the guidelines in:
    How
    to Stay Sane During Planning

    Get Your Personal Finances in Order Now

    Do a personal budget now and in a format that makes sense to others. In the
    budget, make sure that you have sufficient funds to pay your personal bills
    at least until your new business makes sufficient profits to pay your personal
    bills as well as the business’s. The reasons for getting your personal finances
    in order now include:

    • Investors and funders will want to see that you believe in your business
      idea so much that you are willing to invest your own funds.
    • Banks and other lending institutions will want to see a strong credit rating
      from you, as well.

    The following Library topic provides a variety of resources for you.
    Introduction
    to Personal Financial Management

    Be Willing To Seek and Accept Help

    There are numerous sources of assistance in starting and funding a new small
    business. Be sure to scan the sources at
    Sources
    of Assistance With Your Startup

    Also consider
    Getting and Using Banker
    Getting and Using a Consultant
    Getting and Using a Lawyer
    Getting and Using an Accountant

    Then Do a Business-Startup
    Business Plan

    Consider Steps in Starting a Business

    If you are looking for money to start a new business, then you first should
    think about what’s involved in starting a new business even before you get the
    money to start it.

    If investors know that you had the wisdom to very carefully think about those
    first steps, then they are much more likely to give you the money to start the
    business.
    Reference
    Manual for How to Start a Business
    .

    Then Do Business Startup Business Plan

    Most types of investors will ask for a well developed business plan. A business
    plan will guide you to carefully think about how your business can regularly
    make a profit over time.

    The above-mentioned Reference
    Manual for How to Start a Business
    will specify when to start that business
    plan. It also will link to another Library topic that will guide you to do the
    right kind of business plan for your needs.

    If you want to read about business planning now, this topic will guide you
    through every step of developing one. In that topic, be sure to focus on the
    “startup” design of a business plan.
    All About Business
    Planning

    Also consider
    How
    Do You Know You’re Financially Ready To Start A Business Full-time?

    Are You Ready to Seek
    Funding? This 10-Point Checklist Will Decide
    How
    to Prepare for Your First Round of Startup Funding
    Five
    Things Small Business Owners Should Prepare to Ensure Funding Success

    Then Estimate How Much Money You
    Need to Start Your Business

    Depends Especially on the Type of Business You Are Starting

    The amount of money that you’ll need depends on whether you’re starting a:

    1. Manufacturing business — that includes getting different types of resources,
      storing them, assembling them and shipping them to the customers.
    2. Online store — that includes designing online catalogs of products, utilizing
      credit card processing services, arranging order fulfillment and shipping
      products to the customers.
    3. Service industry — that includes developing and retaining sufficient expertise,
      understanding customer needs and working with customers to meet their needs.

    For Now, Identify Typical Business Startup Costs

    There are standard startup costs that you will probably incur regardless of
    the type of business you are starting, for example: legal filings, professional
    services, facilities, labor costs, marketing, website design and maintenance,
    computers and software, and telephones.

    Here is a very useful spreadsheet that lists and and organizes many of the
    typical startup costs. It includes directions to download it to your computer
    and then open it in a spreadsheet.
    Small
    Business Start Up Costs

    Then Compute Your Business StartUp Costs

    One Simple Overall Approach

    You can arrive at the same amount by taking a variety of different approaches.
    For example, the article How
    to Estimate Start-Up Costs
    suggests:

    1. List your likely spending on the assets in your business, for example, facilities,
      mortgage, shelves, tables, a cash register, etc.
    2. Then list your likely spending on typical expenses, such as those in the
      above-mentioned spreadsheet.
    3. Then determine how much you’ll need to get started by adding up the spending
      from numbers 1 and 2. It’s not likely that you’ll get money from profits during
      the first six months of operations. So spread the total of your expenses over
      the first six months to give you a better idea of how to spend the money.

    A More Specific Approach

    The article Startup
    Costs: How Much Cash Will You Need?
    suggests a more specific approach including:

    First, estimate your costs, including:

    1. One-time costs – professional fees (lawyer, accountant, etc.), loan fees,
      equipment purchases, bookkeeping software, etc. (these are “variable
      costs”)
    2. Ongoing costs – rent, utilities, supplies, etc. (these are fixed costs)

    Or:

    1. Essential costs – rent, labor, computers, etc.
    2. Optional costs – enhancements to furniture, services you could do yourself,
      etc.

    Or

    1. Fixed costs – that you cannot avoid
    2. Variable costs – that vary with your rate of sales

    Draft a Business Startup Cash Flow Statement

    Then, estimate your cash flow — how much you’ll spend and need — for the
    first six months. This is the most important financial statement to do when
    starting a business. It tells you whether you can pay your bills or not. Here
    is a downloadable spreadsheet to start your basic cash flow spreadsheet.
    Cash Flow
    Forecast template

    Also consider
    Calculate
    Your Startup Costs
    How
    Do You Know You’re Financially Ready To Start A Business Full-time?
    Startup
    Basics: How Much Money Do You Need to Start a Business?
    How to Evaluate Start-Up
    Costs

    Startup
    Costs: How Much Cash Will You Need?

    Now Identify Your Best
    Sources of Funding for Your Startup

    There is a wide variety of sources of funding for startup businesses. For example,
    this article Startup
    Funding Comparison Table
    compares the features of each of 31 different types.
    Most new startups use a variety of sources for funds. The following is an overview
    of the most often mentioned sources for startups. The following list is by alphabetical
    order only.

    Traditional Sources of Funds to
    Businesses

    At the time of this writing (2019), the following sources are frequently mentioned
    in literature about funding for businesses.

    Angel Investors

    These are wealthy individuals or groups who invest in startups to make a profit
    and/or to assist a business that is closely affiliated with the interests or
    causes of the investors. These investors are usually very familiar with the
    challenges of starting and developing a small business and, thus, can be very
    useful to business owners. These investors want comprehensive and due diligence
    (fact-gathering to analyze the startup) before they invest. They might want
    partial ownership and decision-making in the business.
    Angel
    Investor Groups
    How
    Angel Investors And Angel Groups Work
    The Top 10 Angel Investor
    Groups

    Bootstrapping

    This source includes your own money either from your own savings or money generated
    from your private assets. Investors often want to see that the entrepreneur
    will invest some of their own funds. This source is often used as “seed”
    money, that is, to fund the new business until other sources of funds are obtained.
    How
    to Bootstrap Your Small Business From the Ground Up
    6 Sources of Bootstrap
    Financing
    25
    Amazing Ways to Bootstrap Your Business

    Crowdfunding

    This source includes a marketing campaign via social media that aims to raise
    small amounts of donated money from numerous individuals and organizations.
    As written at Launch
    Your Idea With These Top Crowdfunding Services
    , “If your business is
    a startup or doesn’t quite meet the bank’s requirements for a conventional
    loan, or you just want to stay out of debt and keep 100% ownership, then crowdfunding
    your idea may be a viable solution for your funding needs.”
    8
    Crowdfunding Sites: Which Is Best for You?

    Family and Friends

    This is another popular source of funds for startups. Although they are family
    and friends, the terms of this grant or loan of funds from this source should
    still be carefully specified in a loan agreement, especially to avoid confusion,
    frustration and troubled relationships in the future.
    Family
    and Friends Financing
    How
    to Borrow from Family and Friends
    The
    Right Way To Get Funding From Family And Friends

    Loans – Commercial Bank Business
    Loans

    There is a trend away from commercial banks giving loans for small startups.
    Estimates are that about 35% of small businesses get funding via this means.
    Banks want evidence of collateral that will subsidize the loan, a good credit
    history and/or that the borrower having strong experience in the industry of
    the business. A personal loan can take as few as a couple of days if the bank
    already knows the borrower. A business loan from the bank usually takes up to
    a few weeks.
    10
    Things the Bank Will Ask When You Need a Business Loan
    How
    to Get a Loan to Start a Business: Follow These 4 Steps
    How
    to Get a Loan to Start a Business: What to Know About Startup Loans

    Loans – Credit Cards

    The advantage of using a personal or business credit card is that funds can
    be immediately available and the funds usually do not need to be secured by
    collateral. Funds are usually in small amounts, for example, $2,000 to $3,000
    to help get the business started or through various shortages of cash. The borrower
    pays an interest rate on the borrowed funds and usually, the stronger the borrower’s
    credit ratings, the lower the amount. A downside of this approach is that it
    is a very expensive way of addressing cash shortages and can end up hurting
    the borrower’s credit history.
    Can
    I Fund a Startup With My Credit Card?
    8
    Steps To Wisely Financing A Business with A Credit Card
    When
    Is Using Credit Cards to Fund Your Business Right?

    Loans – Lines of Credit

    A startup business line of credit is a loan that is usually backed by the borrower’s
    collateral, for example, a home or significant property. The borrower can continue
    to borrow up to a pre-set limit. Thus, it is similar to a credit card. Interest
    rates are often lower than the typical credit card rates.
    Business
    Line of Credit: How It Works and Best Options
    Small Business
    Line of Credit: How to Choose the Right Option
    The
    Pros and Cons of a Startup Business Line of Credit

    Loans – SBA-Backed (Government Loans)

    The Small Business Administration (SBA) in the United States of American backs,
    or guarantees, the payments of loans for small businesses. (If the borrower
    defaults, the SBA pays off the loan.) Advantages are that the loans are usually
    less expensive to start, have flexible eligibility requirements and come with
    advice about starting and running the business. Loans are provided based on
    the business’s expected income, nature of its ownership and where it operates.
    SBA Loans
    SBA
    Loans: What You Need to Know
    Find the Lowest
    Rates on SBA Loans

    Venture Capitalists

    This is usually an organization, rather than a singular individual, comprised
    of experts in starting and developing businesses. They seek significant returns
    or increases in profits from their investments. They usually invest primarily
    in businesses that show clear evidence of strong current and/or potential growth.
    A major benefit of this source is availability of ongoing advice and resources
    to help the business. Similar to angel investors, they expect careful due diligence
    and partial ownership regarding their investments.
    10 Tips
    for Finding Outside Investors for Your Business
    How
    To Get Venture Capital Funding For Your Startup
    The Entrepreneur’s
    Guide to Venture Capitalists

    Non-Traditional Sources of Funding
    for Businesses

    At the time of this writing (2019), the following sources are occasionally
    — but not yet frequently mentioned — sources of funding to businesses. The
    following list is by alphabetical order only.

    Business Incubators

    A business incubator is an organization that assists startups by providing
    specialized facilities and services. The incubator’s overall goal is regional
    or national economic development. Facilities might be, for example, shared office
    space or computer equipment. Services might be trainings on activities to start
    and management startups.
    Business Incubator
    25
    Diverse Startup Incubators
    The
    Top 40 Startup Accelerators and Incubators in North America in 2019

    Grants

    These are funds given to small businesses in certain industries, especially
    those that benefit society, in scientific or research. They are not always limited
    to nonprofit organizations. However, it take a long time to apply and receive
    these kinds of grants. Also, they often are highly competitive to get because
    many organizations apply to get them.
    Small-Business
    Grants: Where to Find Free Money
    Small Business
    Grants: 107 Ways to Get Free Money for Your Business
    Small Business
    Grants: 21 Best Places for Free Money in 2019

    Loans Collateralized by Accounts Receivable

    Accounts receivable includes the money that customers owe to the business when
    they bought items on credit. So, in effect, these receivables are a form of
    money in that they have strong likelihood of become actual money when they are
    paid by the customers. Thus, they can be used as collateral by the business
    when borrowing money for its own expenses.
    Overview
    of Accounts Receivable Financing

    How
    to Show Accounts Receivable Used as Collateral
    What
    is a Line of Credit Secured by Accounts Receivable?

    Microloans

    As defined at What
    Are Microloans?
    , “Microloans are typically defined as very small, short-term
    loans with a low-interest rate, extended to self-employed individuals, new startups
    with very low capital requirements, or small businesses with only a few employees.”
    Everything
    You Need to Know About Microloans for Startups

    SBA’s
    Microloan Program
    The 5
    Best Microloans: How and Where to Get Them

    Peer-to-Peer Lending

    This is a type of funding in which a person can get a small loan from a collection
    of other individuals (investors). The loans are facilitated by a variety of
    online organizations to which a person submits an application for a loan. The
    organization lists the loan applications in a directory that investors can review.
    Each application has a deadline to be funded. The facilitating organizations
    ensure the applications are complete, including to get the borrower’s credit
    information. These loans usually have affordable interest rates and are not
    secured, or collateralized.
    Peer-to-Peer
    Lending for Small Businesses
    Peer-to-Peer
    (P2P) Business Loans: Where to Find Them
    How
    to Use Peer-to-Peer Loans to Fund Your Small Business

    Trade Services

    This source includes trading one or more assets (cash, expertise, services,
    facilities, stock, etc.) of the startup business for one or more assets owned
    by another. As to whether it is a trade or not depends on the specifics of the
    exchange. It can be an advantage to a startup that already has strong expertise
    in various areas, but that needs other assets to develop to the next stage.
    The
    Top 5 Considerations When Trading Equity For Services
    7
    Things to Consider Before Trading Your Services for Equity
    As
    a Startup, Is It Better to Find a Way to Pay for Services or Trade Equity for
    It?

    Also consider
    The
    Most Common Funding Types for Young Startups, Explained
    How
    to Fund Your Business Startup: 5 Fast and Popular Options
    Small
    Business Financing Options Without a Traditional Bank

    9
    Realistic Ways To Fund Your Startup
    The 10 Most Reliable
    Ways to Fund a Startup


    Sources of Assistance With Your Startup

    Business Startup Templates and Calculators

    Small
    Business StartUp Costs (template)|
    SCORE Start-Up Expenses
    (template)
    This
    Is the Best Budget Template for New Business Owners (template)
    Business Startup
    Cost Calculator
    CardConnect
    This
    Free Small-Business Budget Template Will Take Your Bookkeeping to the Next Level
    Essential
    financial tools: a free budget template and guide
    5
    Free Small Business Budget Templates
    How
    Much Money Do You Need to Start a Business?

    Sources of Free Assistance

    The sources of free assistance to getting funding are very similar to those
    who assist in starting businesses. The following link is to a large number of
    free and helpful sources of assistance.
    Free
    Help to Start a Business


    Learn More in the Library’s Blogs Related to This Topic

    In addition to the articles on this current page, also see the following blogs
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    posts. Also see the section “Recent Blog Posts” in the sidebar of
    the blog or click on “next” near the bottom of a post in the blog.
    The blog also links to numerous free related resources.

    Library’s
    Business Planning Blog

    Library’s
    Building a Business Blog

    Library’s
    Strategic Planning Blog






    For the Category of Financial Management (For-Profit):

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