Growth June 3, 2015 Last updated September 18th, 2018 2,611 Reads share

8 Great Ways of Building up Your Startup Capital

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So, you’ve been carrying around that brilliant idea of how to put your own genius to work for some time now, but you absolutely don’t have the faintest idea about how to start? Taking up a business venture is not as hard as it is incredibly complex, in a way that there is so much to think about and plan with precision.

However, sometimes, all it takes is an original idea, and (presuming that you’ve already brainstormed one), determination and a carefully worked-out strategy. Research skills are another set of assets you should dust off, since knowing what to look for and where to find it will come extremely handy.

Step number two, the one that follows up the initial idea, which is the first step, is dealing with the financial plan. For the time being, that plan can be a hypothetical draft version of the funds you’ll need for executing your idea. Spend some time alone with your thoughts and a pen. Do a rough calculation about how much money you’ll need for starting-up essentials and staying afloat during the launching period.

That means that you are going to need to answer some questions, such as the issues of the product or service, number of employees, required technology, marketing, et cetera. Gradually, these answers will grow to be your business plan. When digits start to round up, the time is right to start exploring your funding options. Here are some, and what you should know about them in order to pick the best one.

#1. Out-Of-Pocket Money

Being able to invest in your business from your own pocket is definitely the most secure choice, given that throughout the entire endeavor, you will be your own boss. If your plan succeeds and your business thrives, the yield will be entirely yours to collect. If, however, your business sinks, even though you’ll be in deficit, at least it will be your own, and repaying loans for the next couple of years won’t give you any headaches.

For that reason, start estimating your assets, and decide what possessions you can liquidate. If you’re not especially excited about selling what you already own, try earning some fast money with adjunct or part-time jobs until your budget is bulky enough to provide a startup capital for your business.

#2. Borrowing Against Home Equity

Home-equity loans can be a good choice for building up business capital, but you should approach lenders with caution. Before leveraging the mortgage value of your home, evaluate how much money you’ll need for monthly paybacks, and how long the lifespan of a loan will be. If the calculation matches your financial plan, inspect the options.

These loans are available in terms that usually vary from five to fifteen years, and come in two different types. Fixed-rate loans will grant you a single payment, which has to be fully returned in a set period of time, at a certain interest rate. Home-equity loans mostly come with a credit card from which you can withdraw money as needed at a previously set spending limit. Monthly paybacks vary based on the amount of money borrowed and the current interest rate.

#3. Family and Friends

Less risky on a professional level, but somewhat complicated on an intimate one, personal loans may offer alternate or additional sources of funding. What’s convenient and helpful about them is that interest rates and the time required for an investment return don’t have to be precisely defined.

However, mixing up businesses and friendships can be tricky, and reveal hidden pitfalls. In order to protect your personal relations and keep them clean, you should insist upon scribing some kind of written agreement that clarifies the terms of the loan. Never take family credits for granted, given that they can cause some serious feuds. Stick to your part of the agreement responsibly, and the collaboration should run smoothly.

#4. Bank Loans

As lending institutions, banks offer a lot of possibilities for small business entrepreneurs, especially for those who need the beginning funds for construction, machinery and working capital. Lands can be intermediate-term or long-term, and both types come with specified repayment schedules.

The first type requires you to repay the credit over a course of less than three years, and repayments, as they most usually do, come from your earnings on a monthly basis. The reimbursement of long-term loans generally takes up to ten or twenty years and includes additional requirements such as limits on the amount of additional financial commitments the business may take on.

The thing you should know about borrowing your startup capital from the bank is that this process may take a long time, since it requires a thorough checkup of your financial history.

#5. Government Programs

The main difference between government and bank loans is in the fact that the government doesn’t necessarily demand your credit report to be as strong as other lenders do. The contract is pretty much the same in both cases, with another huge advantage – the government’s interest rates are usually lower.

Although this seems like a much favorable solution, you should get acquainted with what happens behind the machine lending you money. The intermediary in this trade is also a bank or other type of credit union, which has a partnership deal with the government. That way, your request is more likely to get authorized, since you have the government-guarantee as support. In case of your insolvency, the government will pay the rest of your loan.

The other option the government offers is building your capital through various lending programs.

#6. Angel Investors

With the sweetest name in the capital marketplace, angel investors can certainly help you out. An angel investor is an informal, wealthy funder, an individual or a network of investors, who can provide a loan for launching small businesses in return for ownership equity or convertible bonds.

However opportunely that may sound, finding an angel investor can be hard. If they are not a part of the network, and they are unfamiliar with a market you’re presenting your product to, so it can be hard to convince them to make an investment. Also, the fact that they prefer to stay anonymous is not an extenuating one. Therefore, getting in touch with an angel network is much easier, since its whole point is to offer a team of experts to mediate between borrower and lender.

#7. Venture Capitalists

Although the concept is similar, there is a difference between angel investors and venture capitalists. With investing in your business, they both hold a private equity.  The main distinction is that first are individuals, as mentioned, and the money they are willing to lend you is coming from their private safes.

Venture capitalists are companies that deal with other people’s resources. The difference is important for two reasons, of which the first goes in your favor and second not so much. Given that venture capitalists dispose with joint funds, they have more money to borrow. However, that exact reason is making them circumspective, since they have more to put to risk. Because of that, they are usually unwilling to invest in beginners if they don’t have an especially strong case to present.

#8. Business Plan Competitions

If you are young and eager to put your ideas on paper and then cash them, business plan competitions are an incredible opportunity for you. Prizewinners’ awards vary from competition to competition. Mostly, the winner receives funds for starting their business, and if the money prize is not enough, the title to put in a resume and present to possible investors is pretty shiny.

However, the brilliant idea is not enough, and doesn’t win the race. You’ll need your business plan writing skills to be impeccable, since these competitions value strategy and inventiveness above all. By gaining massive popularity, business plan competitions have expended their specialties, and your concept can certainly fit one. Small business plans contests are numerous, but funders are usually fond of future businessmen with some kind of a noble cause or an idea that helps a community.

If your will is strong, and you believe in the profitability of your idea, don’t get lazy. Strategize, explore, weigh and scramble your way to success.

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Ivan Dimitrijevic

Ivan Dimitrijevic

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