If you are going to need outside financing to get your new business up and running, then where do you start? These days, as credit becomes harder to come by and personal equity shrinks for the majority of Americans, the answer may not be so simple.
The State of Start-up Financing Today
For those thinking of starting their own business, the state of the economy has certainly made the process more daunting. Though it may not sound so encouraging, the unavoidable truth is that the U.S. economy is struggling under a heavy load of pervasive, fundamental problems, and it doesn’t look like they’ll be much change for the better for a few years to come.
Due to the recession and the subsequent weak “recovery,” the rules of business finance in particular have changed somewhat. Traditional business lending- especially among small businesses– has stalled, not because there isn’t enough money available, but because banks and lenders are hesitant to lend out money to all but the most creditworthy borrowers (and more often then not, those ideal borrowers are not the people seeking loans in the first place). Moreover, there is a growing adversity even among would-be borrowers towards taking on debt. So what we have here is a case of plenty of fish in the pond and plenty of bait; but few are out fishing and even fewer are biting.
Instead, an increasing number aspiring entrepreneurs have been turning towards more non-traditional, and often less formal sources of financing to start up their businesses. In this post, I will list many of these sources of financing as well as some resources you can check out to see which options may be appropriate for your particular situation.
Frugal Start-up Financing Options
1. Turning to friends and family. Though asking friends and family for money is an age-old, tried and true method of getting financing, if you want to still be able to speak to your acquaintances afterward, it’s a good idea to “seal the deal” with a formal, written contract. It may seem a little awkward to write up a contract for mom and dad, but by doing so the message that you are sending to both yourself and your acquaintances is that you are taking the transaction and your business seriously.
This contract should include the amount of money received, the method of repayment as well as the specified repayment period. If your acquaintances will be shareholders in the business, then make sure you consult with an accountant or lawyer regarding how to set that up.
Continue reading here.