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Funding Your Small Business

Many small businesses need money to get started. They require money for purchasing inventory, renting space, buying equipment, and paying employees, among other things. See start up planning for more on how to estimate your budget.

Money may come from many sources, many of which are listed below in the order of difficulty of obtaining:

  • your own money - the easiest place to start. Even if you choose another source of funding, others will expect you to make a substantial investment of your own money as evidence and insurance of your commitment to the business.
  • loans from friends and relatives - if you know people that can contribute, seek them out. The advantage is that they know you and are more likely to invest in an idea that they think you can turn a profit from based on their prior experience with you. However, be sure to document the basis of the funding -- loan or ownership -- and the mechanism for repayment so that there is no misunderstanding in the future.
  • grants and low-cost loans - government recognizes the economic and social value of small businesses, particularly those run by minorities or operating in economically depressed areas. Look to see if you qualify for startup grants and low-cost loans.
  • banks - a traditional source of funding. Be prepared to review the details of your planned business -- the more details the better, since you have to persuade them that you will be able to repay the loan.
  • venture capitalists - for businesses that need a lot of cash to get started, have a competent owner/management team, and offer the real potential for significant return, venture capitalists can be the answer. In addition to providing funding, they often provide management advice (a plus) and oversight (can be a negative if you like to run the show) to protect their investment.
  • investors - you can always try raising money from unknown investors; the funding can come from selling bonds, promissory notes, or part of the ownership. This area involves many legal complexities, so consult with a professional.
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