Financing Sources for Your Startup

Starting a business can be an expensive venture. In an ideal situation, you get your business off the ground with as few dollars as possible to try out the idea. Once the idea is proven or at least shows signs of success, you can ramp up your need for financing.

7 Business Startup Funding Sources

Here are 7 different sources of funding to consider when starting your business.

Your Own Income

You don't want to bite off more than you can chew by getting serious financing or investing a lot of money into sunk costs when starting your business. When you first start out you want to be as small and nimble as possible. If you have a regular job you can use your monthly income from work to finance the business on the side to prove the concept.

Cost and Risk: Missed opportunity to save for other personal goals, lost interest or growth if the money had been saved or invested, but low financial risk since you are not going into debt to a third party.

Credit Cards

There comes a time when you need to invest significant dollars into your business. Not many people have thousands of dollars sitting around to dump into buying equipment or supplies for a business venture. For many people the easiest method of funding has been their credit score. One credit card could approve you for the thousands of dollars you need to spend to ramp up.

Cost and Risk: You will pay high interest rates ranging from 14% to 20% while suffering higher risk, because you will still owe the money if your business fails.

Family and Friends

Your family and friends want to see you succeed. They may be willing to loan you money or buy into an equity stake in your firm if they believe in the idea. You would be able to set up the terms as you see fit.

Cost and Risk: Costs will be determined by your agreements with your investors. The greater concern is the large personal risk incurred due to the fallout that occurs if your business fails and your closest friends and family members don't get their money back.

Business Plan Competitions

For larger business ideas that need funding from the beginning, entrepreneurs can turn to business plan competitions. Your plan is presented and compared to those of other competitors, and the winners can walk away with as much as $100,000 in funding to get their business off the ground.