Lack of capital is repeatedly cited as one of the top reasons businesses fail. In a survey, a whopping 79% of small business owners who closed shop cited "starting out with too little money" as a reason for their failure. It forces countless businesses to close shop before they're even given a real chance to succeed. In a previous post, we discussed how to figure out how much you'll actually need. In this post, we discuss how to get it.
First Things First
Before you even consider taking the huge risk of quitting your day job and becoming an entrepreneur, you have to make sure you're actually on to something. We all get those moments when we think of a great idea for a business, but that's just not enough. You have to do a lot of research, ask the hard questions. Then there's the question if you're willing to be flat broke and lose time for pretty much anything else for at least a couple of years. Whether you should even consider starting your own business is the first question.
From Your Own (or Your Family's and Friends') Pockets
A full 68% of startup capital comes from the business owner's own money and assets on average, according to Dave Roos citing figures from Consumer Reports. This makes sense, since at least you'll only have to answer to yourself if things go wrong. Other sources of funding can easily lead to legal and financial trouble, or at least destroyed relationships.
Unless you've got money to throw away, learn to love a frugal lifestyle, at least for the first few years. Sell or downgrade assets that you don't really need or that are burning a hole in your pocket.
Leveraging Your Assets
After cutting down on the excesses of your lifestyle, consider the value of what's left and see if you can get loans against such assets as your house or your 401(k) or IRA accounts. This comes with added responsibilities since the installments will keep coming like clockwork, even if you close shop. Many have had to file for bankruptcy because of runaway debt, so be careful.
Finding Investors
Investors are another way to get funding, but as with taking out a loan on your house, be sure you know what you're getting into. An investor usually treats their investments as a purchase of a share of your business, so be careful you're not actually letting your business fall into other people's hands. Also, your business will also need to already be at a level that investors can see good potential for profit.
Get a Loan
Straight-out loans are another option. Aside from friends and family and your credit cards, loans can be availed through the SBA or from banks. Those from the said institutions, however, are almost always harder to get than other options and usually require a good credit standing and positive track record.
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