You have your idea. It’s a good, a service or some combination of the two. This is something you are deeply passionate about, something you will have autonomy over and something that you know will serve a good purpose. You want to start your own business.
There is just one major obstacle in your way: money, or lack thereof. How does one go about funding their business? To some, the answer is easier said than done. To others, the answer is just as mysterious as the means of achieving it. Below, we will outline the most common forms of obtaining that “startup amount” so you can get your business on the ground and running.
This method is one of the more popular “self-fund” methods to starting your own business. The strength of the line of credit will be determined by how strong your personal credit history is and whether you open shop as a sole proprietor (personal guarantee of all debts) or under some form of limited liability like an LLC. A very positive aspect to this method is that it shows other potential investors you genuinely care and believe in your business. The ability to present valuable personal assets to your bank as security for obtaining a line of credit for your own company, especially when you are still a very nascent company, speaks volumes to investors and could help in the long run.
Family and Friends
This method is the most organic and self-explanatory. In fact, mixing this method with the previous one (credit cards) could help even more than just this method alone because now you are proving to those you care about most that you also deeply care about this business. Additionally, because these people are going to be those that know you the very best, they will be the most comfortable supporting your business with you.
A word of caution: even though these are your closest people, that doesn’t mean a contract or agreement shouldn’t be written out. It may sound odd to ask your aunt and uncle to fill out a loan agreement or a contract guaranteeing them a certain percentage as the company grows, but this is your business and you want to treat it as professionally as possible. Taking the time to treat each investor as professionally as possible will save headaches and confusion later, whether in a boardroom meeting or the dinner table at Christmas.
Thanks to Jumpstart Our Business Startups Act (JOBS), signed into law in April of 2012, equity crowdfunding for startups is not limited to people of certain levels of financial sophistication. Online campaigns like Kickstarter allow anyone can be an investor.
Note, however, that online crowdfunding appears to work best with goods-based businesses because early and unsophisticated investors are generally more easily convinced by the prospect of a concrete product rather than a nebulous service. Although newer, less secure and lacking in the track record of traditional forms of startups, crowdfunding may, in the right circumstances, serve as a stepping stone as your progress toward angel and venture capitalist funding.