So, you’ve got a million-dollar idea, but you aren’t sure how to start funding your entrepreneurial dreams. Access to capital is the largest problem for early-stage entrepreneurs, followed by access to investors. Here are some ideas on how you can gather the capital for your business:
1. Friends and Family
Borrowing money from friends and family is a popular method of raising money to launch your own business. This option comes with a caveat, however—things can quickly go sour when borrowing money from loved ones, especially if payments are missed or the business fails. To protect yourself and your relationships, draft a written loan agreement. Don’t rely on handshake deals. Treat a loan from a friend or family member like any other business loan.
2. Business Loans
The Small Business Administration (SBA) keeps a list of the most active SBA-approved lenders. Wells Fargo sits at the top of that list, offering more than twice as much in combined loans as the nearest competitor.
The Small Business Administration offers many of its own business loan programs, including the basic 7(a) loan program, the most-used program the SBA offers. The SBA is an excellent resource all around, though they don’t loan the money out themselves directly; they simply back borrowers and help guarantee they get qualified loans from reputable lenders.
According to Entrepreneur, self-funding is the most common form of financing for startups. Banks and investors like to see business owners who are willing to risk their own capital to get their venture off the ground. Investing your own hard-earned income to build a business shows that you have faith in what you are doing and builds credibility with potential investors.
Reassess your assets. It’s likely you have capital resources you hadn’t considered before. Home equity, savings accounts, unused recreational equipment, collectibles and more are all assets you can sell for startup cash or leverage as loan collateral.
4. Local Economic Development
Local economic development offices have a vested interest in helping local businesses succeed, as it spurs state and local economic growth. While it depends on where you are located, most agencies offer grants and low-interest loans to would-be entrepreneurs.
In some cases, truly innovative ideas have secured startup money via crowdfunding sites like Kickstarter. By offering “micro investors” an incentive to help you build capital, you can engage an entire community in helping you create the business you’ve always dreamed of.