Business Opportunity Success Tip #4

Raising Capital

Probably, one of the greatest hurdles in starting your own business is having enough capital to fund it. It’s a cliché but it does take money to make money. Fortunately, there are numerous ways to borrow cash to fund your fledgling business. Each has its own unique pros and cons, and weighing them carefully is very important.

Getting a Loan from Your Savings – This is probably the best way to go if you’re a sole proprietor. This may not be feasible for larger projects, but for smaller ones, it will be enough. Borrowing from families and friends can be convenient, too. There are no pre-qualifications and interest payments. However, the types of companies you can set up are very limited. Generally speaking, the higher the capital required, the more you should not rely on your own savings for funding.

Business Loans from Banks – They have very large interest rates. Perhaps it’s not the best way to start a business unless you are very confident about generating revenues. There is usually a very lengthy process in order to secure business loans from a bank. Many banks will not even entertain you if this is the first time that you are opening a business. In general, banks may not be the best sources of funding for new businesses.

Government Loans – SBA or small business administration loans are federally-insured loans available in many financing institutions. This can be the ideal type of loan to make because it was specifically created to address the needs of small business owners. Interest rates are generally much smaller than those available from banks. This is because the government insures the loan, protecting the lender in case the borrower defaults. Like most business loans, a rather lengthy application process is in place. Only small businesses may apply.

Venture Capital – Rarely does anyone find any type of funding from venture capitalists, but it’s important to cover all bases. Venture capitalists do not make loans but rather invests in very promising business ideas. Hence, they own a share of your business if it grows – a large part of it, in fact. Venture capital is not feasible for many types of businesses.

Credit Unions – Financial cooperatives can be a good source of funding. Community-based financial co-operatives are made for the benefit of their members, hence, they have very low-interest rates on most loans. The pre-qualification is based more on a member’s character worthiness instead of creditworthiness which is the main criterion of commercial banks. People who may otherwise not qualify for other types of loans can tap into credit unions.

It’s always better to start with a small idea and see if it catches on. Don’t make the mistake committed by so many aspiring entrepreneurs, setting up shop big time only to find out that things are not working out as they expected. Even the most detailed feasibility study which corporations pay for cannot predict absolute returns. By starting small you reduce your need for financing and mitigate risks.