New business finance

Finding the financing for your new business could mean the difference between getting your business up and going and failing to see your entrepreneurial goals come to fruition. According to the U.S. Small Business Administration, nearly 650,000 new businesses were created in 2006. You can bet that something that each and every one of those businesses had in common was that they had to find a way to finance that new business. To get your operation up and running, you will need money. How much money you need depends on the type of business you are pursuing. Naturally, it is easier to run a business that requires very little money to operate. However, when you consider all of the small things that are involved in getting a small business up and running, it may surprise you just how many resources running a new business requires.

According to the Global Entrepreneurship Monitor, a research group, the average cost to start a business in the U.S. was $70,200 in 2005. That much money is definitely hard to come by, and remember that that is just an average number! Fortunately, there are a number of different sources from which you can obtain your new business financing. Most forms of business financing fall into two categories: money that you have saved on your own and money that you will borrow from investors. These two new business finance options are listed below.

Financing your new business out of your own pocket

Over half of the average small business's start up costs come from the pocket of the person starting the business. This money is the smartest investment in your business because you do not owe interest to anyone and therefore this money is free to use. You gain all the benefits of watching it grow and suffer none of the negative side effects of having to pay a large amount in interest payments. Here are some ideas for places where you can pull money from in order to finance your new business yourself:

• Personal savings - this includes all forms of personal assets (usually the most liquid assets are the ones used in business investing. These liquid assets are mainly in the form of a checking or savings account). This money can also come from a money-market fund or brokerage account. The point is that this money is free for you to use. One word of caution; although it is best to save your money to be able to borrow as little as possible when starting your own business, it is unwise to pour all of your liquid assets into your business (like the proverbial basket filled with all of your eggs). Decide ahead of time just how much of your own money you are comfortable investing in your business and safeguard the money that remains.
• 401k plans - although you can use your 401k money to fund a new business, it is unwise to withdraw more money than you can afford to lose. There are early withdrawal penalties as well as the risk that if you lose your job and have borrowed against your 401k, you will be required to pay back that money within a short period of time.
• Home equity - a home-equity loan or line of credit is usually quick and inexpensive for qualified borrowers. These loans usually carry much lower interest rates but these loans do have their disadvantages. A home-equity debt puts your home at risk if your business fails and you cannot pay back the loan.

Financing your business through other sources

Many businesses simply do not have the resources to finance their new business entirely out of their own pockets. In this case there are family members, friends, credit cards, personal loans, investors, etc. that you can turn to with your business proposal to hopefully gain the trust of these individuals who will then in turn give you the additional financing that is needed to get your new business up and running.