You will find different logs and articles on the websites that will provide you with a long list of names and sources from where you may take out a loan to fund your startup and leave it up to you to choose one from them after comparison. Well, it is truly a good idea to compare all available lending options before taking on a startup business loan, but you really do not have to take out a loan for that matter, provided you have other personal scopes to fund your business.
Most business owners spend much of their time during initial planning to find out how exactly they can get money to start their business. Most of them do not look into all the other alternative startup financing options and therefore every year hundreds of thousands of Americans end up making the wrong choice while launching their own businesses. According to the US Small Business Administration, SBA it is found that:
- In 2010, there were about 27.9 million small businesses in the US
- About 75% of these businesses were identified by the US government as “non-employer” businesses which means that the owner is the only person working at the business
- Most of these businesses found that the odds of success in business as well as in its funding are pretty long
- Only about half of all the new businesses could survive for at least five years after their launch and
- About a third remain in operation after 10 years of their launch.
In spite of all these, the research also found that there is a very small percentage of such businesses that mature from a startup to a stable small business or to mid-sized businesses. On the other hand, a very small, in fact, a microscopic fraction of business, become legendary business names such as Apple or HP. These companies, as you may know, were born in garages and ultimately soared to the highest positions of American business.
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Know the cost and needs
In order to make sure that you borrow just as much as you need and no more to burden yourself, you first know the cost of starting a new small business. In short, it means that:
- You will have to know your first before you even hop to make your business as good as those legends or even make it just profitable.
- You will also need to find a suitable and feasible way to finance the birth of your business and make sure that with the available funds you can sustain and run it through the initial years.
In order to know the cost of starting a new business in the US, you may take a cue from the SBA that states that the Ewing Marion Kauffmann Foundation estimated that the average cost of starting a small business is about $30,000. However, this is an old estimate of 2009. For the latest estimates about the startup costs, you can check out the online startup cost calculator provided by different sites such as Libertylending.com and others.
Knowing different personal sources
This number of startup costs may seem to you shockingly high at the start but there is nothing to worry because as an entrepreneur, today you have a wide range of funding options available for the startups. These options are not only limited to SBA loans or other microfinance. There are also several personal sallies good to finance a startup. These are:
Friends and family
Asking for financial help from friends and family members is perhaps the most common and easiest way to fund a new small business. This is suitable provided your friends and family know you well and are highly optimistic about your business venture. Of course, if you have bad credit and your friends and family members know about it, you may have to persuade them a bit more decisively so that they believe that you will be able to repay them their money loaned to you.
However, there are a few things that you should keep in mind while considering this option to fund your startup and those are:
- In these circumstances, the probable cost of failure can be the financial inability of the person you asked for help
- It can also be personal as well because all businesses are personal irrespective of what people say and in addition to that
- For most people, it is very difficult to separate the two.
Therefore, for best results and narrowing chances of being turned down, make sure that you shorten your list of friends and family and include only those who really understand you and your plans well. In addition to that, you will be even better off if you make it a point to make them comfortable about the risks involved in your business and make them believe that these risks are avoidable easily with proper planning.
Like many small business owners, you can also use your credit cards for funding your startup. However, for this, you will need to make sure that your credit is not low because in that case, you will not be able to secure credit cards. Remember that these credit card loans will usually have a higher fee as compared to other regular credit cards and therefore are an expensive way of funding a small business startup, especially if you have bad credit because the lenders determine the Annual Percentage Rates based mainly on your personal credit scores.
Word of caution: Research has shown that small business startups that heavily rely on credit card financing usually fail.
Other startup business financing options
There are also other ways to raise money for your new business such as self-financing if you are sure that your business is really going to pan out. The different ways to get such financing are by using your personal savings, a family inheritance, or by selling personal assets such as real estate, bonds, stocks, or valuable family heirlooms but be aware of the unexpected capital gains tax from the IRS.