Startup Funding Options

So, you want to start a business; you have this great idea for one; or, you have a product that you want to introduce to the marketplace.  But what is holding you back?  Money?  Well, there are several options for you to take advantage of.  Let’s take a look at them.

Many aspiring entrepreneurs will say that they will take the money out of their savings.  According to a recent study funded by the Ewing Marion Kauffman Foundation, nearly 70% of entrepreneurs rely o their personal savings. About a quarter of entrepreneurs rely on venture capital and “angel” or private investors (see my earlier essay on Angels vs. Venture Capitalists), while only 15% rely on friends and family. An even smaller percentage — about 7% — received funding through corporate investments. Crowdfunding is also a popular alternative. According to Fundable, a small business crowdfunding platform, crowdfunding raised $5.1 billion in capital in 2012.

There are other options other than those indicated above.  Depending upon the state you live in, you will want to reach out to an economic development agency.  There you will be able to find financing through tax-free bonds.  For example, in New York State there is the New York State Industrial Development Agency, which issues double tax-free bonds.  That is, the income earned from the bond interest exempted the purchaser from both New York State and federal income taxes.  These will offer a much lower interest rate to you from those in the market.

If you are contemplating a manufacturing-based business, you may consider leasing equipment, the supplier of the equipment will finance the purchase of the equipment.

If you are looking to purchase an existing business, the seller may be willing to fund at least a portion of the sale with a mortgage.  This is true especially in the restaurant business and other small businesses. The seller will usually stay with you in the business for about three months to make sure that everything is going smoothly for you and to introduce you to suppliers and other vendors.

Your success in this regard is to think about other financing sources and to think outside the box.