September 23, 2010, 6:00 am

Financing Options For Your Small Business

by: MD    Category: Alternative Income
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Last week I asked if you were afraid to start your own business? Today I wanted to look at the money needed to start your own business.

I was watching the Dragon’s Den program on CBC last night because one of the show participants came into one of my classes last week to speak with us. If you haven’t caught the program yet, I highly recommend that you watch it at least once. You’ll get to see entrepreneurs working their butts off to obtain funding for their small business. Some get their money (eventually). Others get their hearts broken. Some go on just for the publicity of being on television.

I’ve been really interested with small business funding for the past few years. As a result I’ve spoken with a few entrepreneurs about this topic. I’m really not enamored with the whole process of attempting to acquire venture capital.  This is why I came up with a list of funding options for your small business to consider before you go to an Angel Investor or Venture Capitalist (from best to worst):

Your own savings aka sweat equity.

If you’re convinced that your product or service will generate a decent income then you can start off by pumping your own money into the business. This way you won’t have to rely on anyone else for financial support and you can have full autonomy over your business. Of course you must be fairly risk averse because you must be willing to accept the fact that you could lose the majority of your savings if your business never works out.

Hold off.

It makes no sense to hold off if you feel that you have a revolutionary idea and you want the first mover to market advantage. However, realistically speaking, with such high failure rates with most small businesses you might be better off by waiting to get started. You could find out that your business idea was only a fad or you could use the time to run more calculations. Either way there’s nothing wrong with holding off sometimes. Donal Trump mentioned in one of his books (and this stuck with me for 5 years) that sometimes the best investment is the one that you don’t make.

Partner up.

If you know someone in a similar industry or a person that shares the same vision as you, then you could form a partnership. This way you can split the work, along with the funding. You could also encounter a situation where one individual is more proficient at running the business end of things, while the other person can be a financial backer. This could also be a tricky situation. You must clearly outline the responsibilities and expecations of both individuals involved in case something happens.

Family loan.

A family loan is near the bottom for a reason. This really depends on your relationship with the family member. You must be willing to accept the fact that money WILL change this relationship. It could change it for the better if you pay the loan back and throw in some interest. Money could also dramatically hurt this relationship if you take a long time to return the money or if you can’t pay the money back. You must ask yourself and the person: what will happen if I can’t pay the money back? You need a contingency plan or an exit strategy for how you would deal in the event if such a situation does occur.

Credit card.

I do NOT support credit card debt in any way. I do want to say that a credit card company will never ask you any questions. An investor always will. A credit card can help you cover small and unexpected expenses that come along with starting your new business. For example, you could use your credit card to cover a server cost or something minor like that. It’s completely unacceptable to use a credit card to pay for dinners or any other frivolous expense that you may want to accrue for your business. A great alternative method to get credit is to take advantage of invoice factoring for start ups so that you get an advance of funds you know you will make in the future.

Which source of funding have you used or considered for your side business?

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Comments

by: The Financial Blogger | September 23rd, 2010 (12:32 pm)

Personnally, we haved used our own equity to fund our company and start buying websites. It was a weird feeling to drop in a bank account enough to buy a brand new car but we didn’t want to borrow money from a silent investor or family…

What about small business grants? Do you think there’s still enough resources to find them? I’m looking into those, especially since there’s funding available for women and minorities 🙂

@Briana. Thanks for bringing that up! There are many small business grants available from small business associations, the government, your local college, etc. I don’t have enough information on these with me but I do know that you must compile a decent business plan. If you strongly stand behind your business and really want this money, then I recommend that you work out a business plan so that you can present it to one of these sources. You never know. A female from one of my classes received $55,000 in funding for her business because she won the startup business competition.

Neat.

I just watched DD – who was it who talked to your class? One of the judges?

I’ve been spending some time on the SBA site. They have lots of free tools and I have been working with the business plan development. The format is a good way to crunch and recrunch the numbers to see if implementation can be done in such a way as do a cash as you go. Once that is done and money is still needed maybe a part time job would earn enough to provide the start up costs.

[…] Funding Options For Your Small Business @ The Financial […]

@financial blogger
hi i was looking into starting an online business and to make passive income and was wondering what is your business is it only this blog or do you have a company as well? im confued what is your company and what does it/you do
p.s i want to be a cfp as well and start online business but dont know exactly where to begin

by: The Financial Blogger | September 24th, 2010 (7:54 am)

@Joe,
my company owns several blogs and other websites. They are mostly in the financial industry. We make money out of advertising while we don’t sell products or services yet (soon to come 😉 ).

write a good business plan, and then, apply it. this is how we work and it’s been a great success so far.

@financial blogger
okay thanks u have any links i can check out to start a business like your own as i dont know how to begin

@Joe, I just posted a book review of an excellent book about starting a small business and have a catagory of small business articles and links. Many from other successful bloggers.
@Financial Blogger, thanks for posting this article and I look forward to going through your Make Money Online section!

Loan sharks but I don’t recommend it.

@carol
i want to start a online business will the book give me useful info on that or is it for offline/real world small business owners?
also can i manage a online business my self working full time 40 hours a week if so how much time is required to run it successfully

@Joe, it is not specifically directed toward online business but discusses all aspects that would apply to any business endeavor such as resourse allocation in time and money, setting reasonable expectations, conducting market analysis, etc. Very basic stuff but explained step by step. Here is a good one specifically for blogging but there are many more as well. http://www.amazon.com/ProBlogger-Secrets-Blogging-Six-Figure-Income/dp/0470616342/ref=sr_1_1?s=gateway&ie=UTF8&qid=1285350873&sr=8-1

@carol
thanks and me being a newbie id like to be a affiliate with clickbank
when they mail me a weekly check do i pay income tax on that?

Sorry, I don’t know. I don’t have ads on my blog so do not derive any income from it at this time. Try one of the sites where you see they are running ads and they would probably be willing to assist you further.

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