You want to start a business, so you’ll need to get funding. But how do you fund a startup?
If you are like most product or app entrepreneurs-to-be, you are passionate about your business idea. You will stop at nothing to see the world change with your vision. Your conviction convinces others to believe and invest.
As invention investors, IdeaPros specializes in guiding entrepreneurs with great ideas through the complexity and dangers of startups. From launching products or apps, to cash buyouts and selling orders, IdeaPros would like to share the most effective methods to funding a new startup business like yours.
- Personal Funds
- Credit Cards
- Home Equity
- Retirement Accounts
- Friends and Family
- Bank Loan
- Angel Investors
After all, what better investment can you make than investing in yourself? If you’ve been saving money and collecting 1% interest a year, investing in YOU can lead to a much bigger return even with all the risk associated with a startup. Entrepreneurship means “risk taker” – if that’s not you, then that 1% game is where you might want to stay.
Using personal funds means you don’t have to pay anyone back, but if your business fails, you will, of course, lose your money. A serious entrepreneur still will not give that a second thought. What the successful entrepreneur keeps in mind is the leverage of time and investment in themselves and the team they have around them.
Debt is a tool that’s not just for the wealthy. Hiding in your wallet could be the key to your success. There are a couple of advantages when using credit cards to finance a business:
1. they give you revolving credit that you don’t need to reapply for and
2. you don’t have to give up equity. You can sometimes get reward points from your credit card as another perk, and you don’t need collateral. Many credit card companies offer interest-free perks to new members – shop around and you’ll find some great deals out there.
Yes, that’s money sitting there in the form of your house. Money you can use to follow your vision instead of leaving your home equity untouched. It is often the quickest way to finance a new business, and the interest rates are often much lower than credit cards and high-interest loans. And, repayment is over a much longer period of time so your payments can be quite low.
Depending on your plan there are a couple of ways you can access the funds you’ve been saving for retirement. In most cases you can withdraw money by taxable distribution, which, depending on your age, will also typically involve a penalty. Another great option is that many plans allow for “borrowing” from the plan. And that can be for up to ½ of what you have in your retirement. Just be sure to document the loan, charge yourself interest, and pay back regularly. Using this method you can probably avoid any tax consequences or penalties. Make sure to check with your accountant so s/he can advise you of the best strategy.
Many people use money from friends or family to help in startup funding. Family and friends are often more flexible with how repayment will work, and they are willing to make a personal loan with friendlier terms than a traditional loan. These supporters are more likely to be idea investors especially if you can show them how much research and thought you have put into your business planning. We have a blog devoted to just this technique. Be sure to check it out for a game plan.
A more traditional and common way of business funding is a personal loan from a bank, either SBA or regular. This type of loan doesn’t require a business with its own credit score; it will require that you have good credit and the means to pay the loan back. By borrowing from a bank, you will not be using your personal savings or funds, but you will need to make payments on the principal and interest going forward.
If you are far enough along to persuasively argue the benefits of your endeavor and have great supporting data and a real differentiated plan, there are angel groups near you, and those that only work through the internet. Be sure to check on their websites to see what to do in order to have the best possible chance of success. You will have to give up some of your equity but, hey, 100% of zero is…you know the answer!
If you truly have a vision you’ll stop at nothing to see it through. Yes, it’s a major risk – but that’s true for every successful entrepreneur out there. Measure your commitment – and then, if it’s over-the-top, use one or more of these methods to get moving!
IdeaPros is a Super Venture Partner™, guiding entrepreneurs with great ideas through the complexities and pitfalls of the startup world. Set on elevating the success rate of new innovative products and apps, our team leverages their collective experience to create demand among consumers and maximize upside potential for our partners.