Three ways to finance your startup business

Woman with laptop

Now that you have created the problem-solving product that consumers have been waiting for, it’s time to bring it to the marketplace. Regardless of your plans for marketing and distribution, you will undoubtedly need financing. While it may seem to be the biggest hurdle on your way to entrepreneurial success, there are several options available to any small business owner. Perhaps these financing options can help propel your business to the next level.

1.  Self-Financing

Ever found yourself glued to an episode of “Shark Tank” or “The Profit?” If so, you’ve undoubtedly heard the biggest question any investor (or loan underwriter) will ask: “How much have you invested on your own?” According to a 2009 report entitled The Nonemployer Startup Puzzle, which was commissioned by the SBA Office of Advocacy, “about 60 percent of U.S. businesses were self-financed.” Despite these statistics, many entrepreneurs still feel they are permanently stuck in this area with no way out. However, with resourcefulness, many entrepreneurs find the start-up capital they need was well within reach all along.

If you own stocks, your brokerage firm can help structure a low-interest loan against them. Cash value life insurance policies are another viable option, as are annuities. Annuity buyers enter into a contract with the insurance company, paying either one lump-sum premium or a series of payments over time. In exchange for those funds, the insurance firm agrees to send payments to the annuity owner according to an agreed-upon future schedule. For those who receive annual payments from a life insurance policy or an annuity, there is a secondary market of annuity buyers who will agree to pay you a lump sum in exchange for the right to collect future payments from that annuity (essentially releasing you from it). If you already have an annuity, this could be an option for your business. If not, you may want to speak with one of the insurance professionals at annuity.org.

2.  Crowd Funding

Having skyrocketed in popularity in recent years, crowd funding could be the perfect solution to your business funding needs. According to an industry report published by MassSolution (a research and advisory firm specializing in crowd sourcing), the crowd funding industry raised $2.7 Billion in 2012. Experts expect those numbers to rise by a whopping 81 percent in 2013.

Of course, selecting the appropriate platform often hinges upon the type of business you are operating. Kickstarter and Rockethub are the primary sources for all things creative. However, platforms such as Crowdfunder specifically focus on helping small businesses by funding a project through individual donations and donations from angel investors. Somolend is another crowd funding source designed for the small business owner. It’s model involves debt-based funding for existing companies with steady revenue. In short, it functions much like a bank loan against an asset without the difficulty and red-tape often associated with the traditional loan application process for small business.

3.  Angel Investors

Most successful businesses catch a break before they launch into the stratosphere. An angel investor might be that break for your business. These generous donors are ready to your dream. However, refer to the above-referenced Shark Tank example as a cautionary tale–investors do not invest in ideas, they invest in viable businesses. Therefore, if you have not already invested the time and some of your own money and if you cannot quickly establish that this is a viable business poised for growth (not simply a hobby), this option is unlikely to pay off the way you want. Bottom line: Don’t start with an angel investor unless you both attend the same family reunion.

To your startup success!

This is a guest post by Cameron Black.  Cameron is a business reporter who covers money, banking and finance.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s