So you have this killer idea, and now you need some startup cash. Sure, there’s your VISA card, but maxing out your card will clobber your credit rating and saddle you with high-interest debt that will come well before your baby is generating profits. Where do you turn to find free startup capital for your new enterprise?
Americans love the idea of successful small businesses. We love Mom and Pop success stories. We embrace innovation and progress. We believe that the future of personal and national financial success lies in entrepreneurship. We celebrate companies that start out in a garage and earn a national reputation.
Starting a business, of course, is a lot harder than some people would like to think. You need a great idea; you need time and energy and skill. A little luck helps, and most of all you need money. You will almost always need at least some startup capital, and finding it is rarely easy.
Investors and Loans
The two most traditional ways to get financing are to find investors or to borrow. Anyone who has watched the popular TV show “Shark Tank” knows how angel investors work. You pitch your idea, they see potential, and they give you money, right? Well, not quite. Angel investors aren’t angels. They are out to make money. They aren’t giving you money. They are buying a share in your company, which means that your investors are also part owners and have some control over the enterprise. Angel investors also seek out ideas that have the potential for expansion. They want something that can get big, which will allow them to sell their stake at a profit. If you are looking to build a family concern that’s aimed at supporting you, not going nationwide, angel investors will be hard to attract.
The other common option is a loan. The advantage of loans is that you retain full control. The disadvantage is that you have to pay them back, with interest, and payments may begin before your business is profitable. They are also not easy to get. Some government-subsidized loans are available, mainly through the Small Business Administration, but competition is intense. Banks often turn down business loans, especially if the borrower’s credit is less than ideal. Online lending is a popular option, but read the fine print carefully. Better yet, consult a lawyer, because many of these loans turn out to be close to predatory. If you are not knowledgeable and well informed, you might find yourself swimming in a different kind of shark tank!