Best 7 Sources Of Capital For Starting A New Business
The number one reason that businesses fail is under capitalization. The way you build your business capital is very important but normally all small businesses require some capital to get started. Depending on the business, you may only need the capital for a short period of time to develop an inventory or pay salaries. Other businesses may require facilities and equipment purchases in addition to some operating capital to cover business expenses until sales and revenues can support the business. Here are 7 sources of capital you can use to get your business on the right track:
- Personal Capital. This is the source of capital that entrepreneurs turn to first because it's the most easy to use. It's the cash on hand, bank accounts, stock, and other sources of personal wealth that you can tap into for your business.
- Your Home. A home equity line of credit will allow you to transfer the equity in your home to equity in your business. The difference between the value of your home and what you owe could be enough to cover your business start up expenses for a year.
- Bank CD. Do you have a CD in the bank that isn't matured yet? Instead of taking the penalty for early cash out, consider borrowing the money back, securing it with the CD.
- Retirement Accounts. You can borrow money from yourself because it's easy money to tap into, and some of the interest that you pay goes into your retirement account.
- Friends and Family. Try to avoid this source of capital because of the potential relationship troubles if the business fails. Your decision to borrow from friends and family is a personal one, but it is often the easiest way to obtain investment capital.
- Commercial Banks. When funding your business, commercial banks provide the greatest flexibility for types of loans. They will want to see your business plan, and usually six months to a year of track record.
- Small Business Administration - Also known as SBA, is an independent government agency formed in 1953 to help small businesses. They provides loan guarantees, participates with bank loans, and makes a limited number of direct loans.
I think the biggest problem that business owners have is that they are perfectionists. They have started a business doing something that they are good at but it is difficult to get staff that can duplicate what you do. Therefore many business owners tire out and after a period of time they are burned out because they try to do everything themselves.
There are so many sources of capital out there to get your business started but I hope you get the point with the few that is mentioned. As a business owner and you're borrowing money at the start of your business, you must be careful of what you're trying to accomplish because if its not thought out properly this can cause a strain on cash flows and income in order to make debt payments.
- Your Home. A home equity line of credit will allow you to transfer the equity in your home to equity in your business. The difference between the value of your home and what you owe could be enough to cover your business start up expenses for a year.
- Bank CD. Do you have a CD in the bank that isn't matured yet? Instead of taking the penalty for early cash out, consider borrowing the money back, securing it with the CD.
- Retirement Accounts. You can borrow money from yourself because it's easy money to tap into, and some of the interest that you pay goes into your retirement account.
- Friends and Family. Try to avoid this source of capital because of the potential relationship troubles if the business fails. Your decision to borrow from friends and family is a personal one, but it is often the easiest way to obtain investment capital.
- Commercial Banks. When funding your business, commercial banks provide the greatest flexibility for types of loans. They will want to see your business plan, and usually six months to a year of track record.
- Small Business Administration - Also known as SBA, is an independent government agency formed in 1953 to help small businesses. They provides loan guarantees, participates with bank loans, and makes a limited number of direct loans.
I think the biggest problem that business owners have is that they are perfectionists. They have started a business doing something that they are good at but it is difficult to get staff that can duplicate what you do. Therefore many business owners tire out and after a period of time they are burned out because they try to do everything themselves.
There are so many sources of capital out there to get your business started but I hope you get the point with the few that is mentioned. As a business owner and you're borrowing money at the start of your business, you must be careful of what you're trying to accomplish because if its not thought out properly this can cause a strain on cash flows and income in order to make debt payments.