A lot of really incredible business ideas never become a reality because they need money to bring them to life. How are you supposed to get this money? Here are five ways:
1. Fund your business on your own
Funding your business on your own means you own 100% of the business; however it may be difficult to come up with a lump of sum of money all at once. So what can you do?
Consider slowing down the pace of things and funding your business over time. This could mean keeping a full-time or part-time job with a goal of saving money towards launch or using your job to actively fund ongoing business operations.
If you have savings, you can tap into it and then plan to pay yourself back later as your business grows and (hopefully) becomes profitable. Using a 401(k) to fund your business is also an option but be aware that you will get hit with a hefty penalty and lose out on long term growth for your money. This is truly, truly a last resort. Think long and hard before you deprive your future self of the money you've worked hard to save.
Funding your business using credit cards is not recommended unless you are able to make payments in full every month or you have a solid plan in place to pay the money back as soon as possible. You should also consider taking advantage of as many free and inexpensive business resources as possible to keep your business expenses low.
2. Ask family and friends for money
Funding your business with money from family and friends is a very common approach. These are people who know you, trust you and believe in your business idea. It is very important however, that if you choose to go the family and friends route, you have well-established terms that all involved parties agree upon.
Questions to consider when establishing terms and conditions could include: Are you giving away equity in exchange for the loan? How will you pay it back and by when? Will your friends and family have decision making privileges because their money is invested? Getting a lawyer to review the terms and conditions is definitely a good idea. Judge Judy has built an empire on people arguing about these things. Get it all in writing and plan to do what you said you would.
3. Get a bank loan
Getting a loan from a bank to fund your business means you don't have to give up a share of your business in exchange for a loan, which is great. But, it also means that in order to qualify for a bank loan, you need to have good personal and/or business credit.
Also, before qualifying you for a loan, the bank is going to want to see your business plan that details what the business is about, marketing plans, income projections and all the other fine details. They'll need you to prove that they are not taking on excessive risk by loaning you money.
4. Leverage angel investors
Angel investors are usually high net worth individuals who invest in what they consider viable businesses in exchange for an equity stake, a la Shark Tank. They may also be able to make (or be involved in) key business decisions for the business based on their equity stake. If you choose to go the angel investor route, be sure that you understand all the details and have reviewed all the contractual terms and conditions.
Also understand that once your business starts earning money, your angel investors are more than likely going to be first on the list to get paid, way before you.
The benefit of using angel investors is that they can provide you with money to get your business off the ground and insight to keep it running.
5. Go the crowdfunding route
If you are trying to raise funds for a product, then crowdfunding might be right for you. It is basically when a large number of people, usually online, contribute small amounts of money towards your business in exchange for something in return. Access to an early run of your product and perks like future discounts are typical. Kickstarter, GoFundMe, and Indiegogo are the big three. Consumer Affairs has an excellent ranking page for these sites (and their smaller competitors) that offers insight into the nuances of each platform.
You can be mega successful with crowd funding, but it's a whole separate hustle.