Simple ways to finance a start-up

Start-up companies normally require a large investment from the small business owner. On average, you should expect to invest around $70,000 or more into your business. Of course this money probably will not be enough to finance your business so you will need to look into some other sources.

How do you find the money to finance a start-up?
It all depends on how much money you have set aside in your personal savings account. Several small business owners will use the equity that is built-up in their home and invest this into their business. Other small business owners will rely on their credit cards to help them get started with their new business. Credit cards are what the Google founders Larry Page and Sergey Brin used to finance their start-up. While credit cards provide you with some easy cash, they can also completely ruin your credit if you do not properly handle them. Carrying more than 50 percent of the balance on your credit card will start to have a negative impact upon you credit score. You will also be responsible for paying off the credit cards, even if the business is unsuccessful. This can leave you with a huge debt burden and no income to pay it off.

Should you ask family for help?
Almost every start-up company will consider asking friends and family members for help. While a rich uncle may help you out, asking family members for help is risky. These individuals will invest in your company with a promise that you will re-pay the money once your business has become profitable. Bad blood has often occurred due to family investors because family members need their money back sooner than you expected or because you fail to re-pay the full amount they invested. To save yourself a big headache and frustrating family gatherings, draw up a formal contract with every family member that invests in your company.

What about angel investors?
Angel investors are one of the best sources of funding a start-up company can find. Angel investors are wealthy individuals that are willing to invest anywhere from $50,000 to $1 million in your start-up. Each year angel investors spend over $30 billion dollars investing in start-up companies. You can find angel investors through your network of contacts or by meeting with an angel group. Angel groups will meet a few times a month and listen to some of the start-up companies proposals to determine if they deserve funding. Angel investors like to see companies that have a huge potential for growth and are already past the initial start-up procedures.

Why can't I get a bank loan?
Since banks typically lend money to almost everyone, it becomes frustrating for start-ups that are trying to find financing. Banks rarely lend money to start-ups because they are risky. They normally will not consider lending money to a company that has not been in business for at least 2-5 years. The other problem you will run into is that the bank will want some collateral to front the loan. To increase your chances of getting a bank loan, apply for a loan guarantee through the Small Business Administration (SBA). This helps to reduce your risk in the bank's eyes and it may help you get the funding you need for your start-up.

Are there any grants available?
Start-up companies do have some grants available depending upon the industry they are in. Technology tends to have more grants available as do minority groups and gender groups. A grant will not provide you with all the funding you need so it is important to look at some other avenues like angel investors or the equity in your home.