Boost Your Business By Knowing What Resources Are Available
Despite various economic downturns, statistics for new businesses have remained very consistent since 1995. About 80 percent of these enterprises fail in their first year. That oft-quoted statistic may not be entirely accurate, because a business that is sold or merges with another enterprise may not necessarily be considered a “failure.”
Nevertheless, the odds of success are long. Not surprisingly, many businesses fail because they are undercapitalized. In other words, the owners simply underestimate how much money they will need in the first few months or years. To make it through the critical first year, grants for small business are often available. While it is not exactly free money, grants are very close. If such a funding source is not an option, consider these possibilities:
The easiest and quickest way to finance a new business is also the riskiest, because it is your money that’s at stake. There are several ways to self-finance:
Personal Savings: Naturally, this method assumes that one has savings to begin with. In addition to ease, this method also shows future investors that you believe in your business.
Credit Cards: The easy application process is a plus, because most lenders simply consult your credit score. It is usually tough to make credit card payments the first few months, so a rewards card or one with a low introductory rate is usually a good option.
Many people also have assets to sell, like inherited real estate or family heirlooms.
Friends and Family
This option is a very popular one, as nearly two-thirds of new business owners said they borrowed money from family and friends. These individuals are easier to convince than bankers, and they usually do not demand strict repayment terms. Whereas failure to pay a bank loan has only financial consequences, failure to repay a personal loan has both financial and emotional consequences. Furthermore, misunderstandings over money have ruined many relationships, so be sure all the key loan terms are in writing.
The Small Business Administration does not loan money, but it does offer loan guarantees, which make a bank loan easier to obtain. Unlike private bankers who just want their money back, there are significant strings attached to SBA loan guarantees. For example:
- Each owner must have at least a 20 percent stake in the business.
- Loan proceeds cannot be used for some purposes, such as repaying equity investors.
- Certain types of businesses are excluded, such as those that lend money (a pawn shop may be an exception) or are “engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs.”
Interest rates are usually very low, depending on the size of the loan and financial status of the investor. Furthermore, interest only payments are available. The SBA is much more likely to work with a business that’s been around for a few years as opposed to a startup.
The Internet is a great way to pitch a good idea to people all over the world and convince them to invest. Sites like Indiegogo and Kickstarter have helped individuals raise hundreds of millions of dollars for various commercial and noncommercial causes.
Be advised that if the fundraising effort fails to raise a certain amount, the site usually returns money to investors, and the business gets nothing. Some sites also take large percentages as a fee, so it may be best to shop around. If you have a good idea, there are a number of ways to get it off the ground, so choose one (or more) and get to work.