1. Bootstrapping
2. Investment Equity
3. Non Profit Lenders
4. Banks
5. Small Business Administration
6. Angels
7. Grants
Bootstrapping:
This means starting on your own with no outside money. You would use
personal savings, and might need to adjust your living allowance, in
order to fund the start-up costs of the business. Beware of credit cards!
Many people think this is a quick and easy way to get the money they
need, but they end up spending large amounts on the interest payments.
Advantage: No reliance on an outside sources of money, complete
independence in how you operate the business.
Disadvantage: The business may be under-funded and may not
have the support it needs to get off the ground. Also, many people
chose not to write a business plan when they use their own money.
Lack of a plan increases the chance of failure because the business
is less likely to be well researched and analyzed, and because there
are fewer opportunities for outside feedback about the project.
Investment Equity:
Having other people invest in your company. They may be friends, relatives,
or just people willing to take a chance on your idea. You may have one
or many investors. Make sure you always have the terms of your agreement
clearly defined, preferably by a legal document.
Advantage: You get access to necessary funding from people
who are supportive of your business.
Disadvantage: Could strain personal relationships.
Nonprofit Lenders:
Because many people are unable to get bank loans, a number of nonprofit
lenders were founded to fill in the gaps. Such lenders consider a broader
range of criteria (like personal commitment to the business, character,
etc.) when evaluating an application. They may have special businesses
they give preference too, e.g. rural businesses, women-owned businesses,
etc. Like a bank, they also require a business plan and an interview,
but they are willing to take more risks. Examples of non-profit lenders
include:
Vermont Job Start
(http://www.state.vt.us/veda/jobstart.htm)
Vermont Job Start (http://www.vtmicrobusiness.org/our_program_job_start.htm)
Vermont Development Credit Union
(http://www.vdcu.org)
Northern Vermont
Lending Partners (http://homepages.together.net/~edcnv/)
Vermont Community Loan Fund (http://www.vclf.org)
Local
and Regional Revolving Loan Funds (http://www.dca.state.vt.us/vbguide/busfin.htm#rlr)
See their web pages for further contact information
Advantage: Greater chance of getting the money you need. Positive
history with a nonprofit lender will make it more likely you can get
a bank loan in the future.
Disadvantage: It could take 1-3 months to get your application
approved.
Banks:
Their job is to invest money. This may be one of the fastest ways to
get money, if you already have a business plan put together. Banks want
to be sure to get their money back, so they have a conservative lending
approach. They require proof, through a business plan, that you have
a solid idea and the ability to carry it out. They want to see that
you have collateral, or something of value to hold against the loan.
They often insist that you share the risk by putting up some of your
own money. Also, they are more likely to fund existing businesses. Banks
usually avoid very small business loans, but you may be able to get
a line of credit or take out a home equity loan to cover startup expenses
under $5,000. It is important to establish a personal relationship with
your bank, and the earlier the better.
Advantage: Can get large sums of money relatively quickly
while maintaining total control over the business.
Disadvantage: You may not meet bank guidelines because of
your income, your assets, your type of business, you past experience,
etc.
Small Business Administration:
The SBA provides guarantees for certain loans granted through the banks.
There are a number of special programs that have specific eligibility
requirements. You should ask your banker when applying for a bank loan
if you qualify for any SBA loan programs.
Advantage: Increases your chances of getting a bank loan.
Disadvantage: You may still not meet the bank's guidelines
because of your income, your assets, your type of business, you past
experience, etc.
Angels:
'Angels' are people who give you money. These are usually very wealthy
individuals who invest their money in promising businesses. Usually
they support businesses that have relatively large capital requirements
and expect a high return on investment. They are difficult to find,
and are usually introduced to you through word of mouth and personal
relationships. They would then evaluate your business plan and decide
if you are a good investment.
Advantage: A large sum of money that you may not be able to
get elsewhere, with more flexible re-payment terms.
Disadvantage: Very unlikely to find, and may require giving
up some control over the business.
Grants:
This was a popular way to encourage entrepreneurs in the early 70's,
but they are now given mostly to nonprofit lenders to re-circulate.
A direct grant to start your business is pretty much obsolete. A relatively
new approach to getting "grant" money for your business is to enroll
in an Individual Development Account (IDA) program. IDAs usually require
you to participate in a classroom training on basic personal financial
management and budgeting which runs concurrently with a "matched" savings
program. The savings program could last one to three years, with participants
making monthly savings deposits to a special account. For every dollar
saved, you ultimately receive (at least) a dollar added to your account
for use towards your business (or other eligible expense).
Advantage: Money that you don't have to pay back. With IDA you
get invaluable financial management training.
Disadvantage: Very limited opportunities to get this sort of
money, and when available it is only in very small amounts. Cannot be
relied upon to fund all the costs of business startup
