How to Start Your Own Business
Finding money for your start-up venture
Although it may seem like the most overwhelming place to begin, your first step in starting up a new business is to consider the expenses:
- Initial inventory
- Office supplies
- Licenses and permits
- Professional help (lawyers, accountants)
There are two main sources from which you can obtain the money for your start-up:
Equity is comprised of the personal funds from you, your friends and family or partners involved in the business. These investments are not designated for a specific part of the business, and so they can be used as collateral for loans. Furthermore, you may not have to repay them if your business fails. The disadvantage of funding your business this way is that a number of people can become invested in the business, and may have or want a say in its operation. Equity investors may also be entitled to a portion of your profit, thus decreasing your return on investment.
Loans consist of money borrowed for your business, usually from a bank. You will need a sound business plan and enough security - or collateral - to attract a lender. In the case of loans, the lender will charge interest but has no input into how your business is managed. Bank loans are usually approved for a specific purpose, and you are obligated to only use them for what they have been approved for.
- Short-term loans provide the capital for the everyday needs of the business.
- Long-term loans are employed where money is used to purchase supplies, equipment or other assets you plan to have for more than a year.
Borrowing money can be risky. If your business fails, you risk losing the securities you place against your loan. This might include your house or your business property. If you cannot repay funds borrowed from friends or family, you risk damaging your relationship.
Good research and a solid business plan are crucial when it comes to borrowing money for your start-up - you need to pick the right time and have the best idea before you sign any papers. When you're confident on both those points, jump in and start your business on the right foot with the right funding.