So you've got a killer business idea and want to start a business. How are you going to get the business start up funding you need to take your new business from idea to success? Here's howto get money to start a business.
1) Your own pockets.
This may be daunting at first glance, but it’s the most popular source of business startup funding. Don’t have a nest egg? Many people get the start-up money they need by mortgaging or remortgaging their homes, or selling property or possessions – even those who do succeed in getting a start-up business loan. That's because lending institutions and investors usually expect the person starting a business to make a personal financial commitment.
2) Family and friends.
The second most popular source to get money to start a business is family and friends who are often willing to provide a start-up loan or even sometimes make an outright gift to help you get your new enterprise off the ground. After all, they’re likely to be already “pre-sold” on the value of your business idea to some degree being people who want the best for you.
3) A line of credit.
While not recommended as a sole source of start-up money, a line of credit is essential for the start-up phase. No matter how careful and detailed you’ve been in preparing your business plan, there are always unexpected expenses and expenses that you’ve underestimated.
Hopefully, you've already prepared the way to access this source of funds before you decided to start a business by having established a relationship with your local bank manager and by ensuring that your credit rating is in good shape. No bank is going to give a line of credit to someone unknown to them, especially if that person doesn't have a credit rating established.
4) A business loan from a bank.
The term “bank” refers to traditional lending institutions such as banks and Credit Unions. It’s actually easier than ever to get a business loan from these traditional sources, as more people than ever have been successfully starting small businesses and the big banks have more interest in small businesses than they used to.
That said, you can't just walk in, tell a loans manager how much money you want, and expect to walk out with it. Applying for any business loan is a process that you need to prepare for. See How to Get a Small Business Loan to learn how to make a winning loan presentation and get the business start up funding you need.
5) A business loan from a business-related or government sponsored organization.
There are many organizations whose purpose is to promote economic development or provide assistance to help particular types of people succeed in business. Often (but not always) this assistance includes financial support, such as start up loans.
In the U.S., the Small Business Administration (SBA) offers small business loans of several types. Their microloan program, administered through community based non-profits, provides loans of up to $50,000 for working capital, inventory, equipment or starting a business. Here's a list of microloan providers.
The SBA's 7(a) loan program also provides small business funding through loans of up to $5 million dollars through banks and credit unions. These funds are for working capital, expansion, and/or equipment purchases.
In Canada, don’t overlook the BDC (Business Development Bank of Canada). Supporting business is their business and the BDC offers business loans to startup businesses to invest in:
- Working capital to supplement an existing line of credit
- Fixed assets
- Fund marketing and start-up fees
- A franchise purchase
- Consulting services
And the Canada Small Business Financing Program (CSBFP) provides term loans of up to $1 million to help finance fixed asset needs through business loans made directly by a qualified lender (such as a chartered bank, Caisse Populaire, or credit union).
In Canada, microloans are provided through economic development organizations in each province and territory which provide support and services to entrepreneurs, including financial assistance. For example, in Ontario, Community Futures Development Corporations (CFDCs) operate in selected communities in rural and Northern Ontario, while Community Business Development Corporations (CBDCs) serve rural Atlantic Canada.
Many women’s and government organizations also provide financial assistance including startup money to women in business.
Find even more potential lenders in these articles:
In the U.S.
- Learn About Small Business Microloans
- Microloans for Women in Business
- Best Business Loan Programs Available for Veterans
- Startup Funding for Young Entrepreneurs in Canada
- 10 Places to Get Small Business Loans for Your Canadian Small Business
- 20 Sources of Micro Loans for Starting a Canadian Small Business
6) Participating in a government-sponsored business start-up program.
If you qualify, this is the best way to start a business. In Canada, programs such as the Self-Employment Program (for unemployed Employment Insurance eligible individuals) and the Seed Capital ConneXion Program for Young Entrepreneurs (for young entrepreneurs in Atlantic Canada) not only provide money to start a business but invaluable assistance, such as mentoring and help develop your business plan. These are just two such start-up programs; there are others.
Angel investors, venture capitalists, or private lenders all may be excellent funding sources for your new business. While it’s certainly more difficult in most cases to attract investors to a start-up rather than to an established venture, it’s not impossible if you have the right business idea at the right time backed by an impressive business plan. See Prepare an Investor Ready Business Plan for more on tailoring your business plan to impress potential investors.
8) Government grant programs.
While this is often touted as a great source of money to start a business, it’s not, because most start-ups simply don’t qualify as you'll see in The Truth About Small Business Grants in Canada. While there are government grants available, finding one that can provide start-up money for your new business will be an enterprise in itself (which is probably why there are so many companies out there providing grant-finding services).
Those planning to start up “the right business” will have a much easier time finding government grant programs that may provide the needed funds. Generally grants are only available for particular activities the government wants to encourage. For example, generating efficient, renewable energy is a priority of the federal government, so businesses involving Cogeneration (using one fuel to simultaneously produce heat and electricity) or renewable energy technologies will find more government grant opportunities than others. If you're interested in pursuing a grant to get the money you need to start your business, 5 Tips for Finding Small Business Grants can help narrow your search.
In the U.S.
Is a Small Business Grant Right for You?
Which Source of Business Start Up Funding is Best for You?
Probably, like most of the people who have started businesses before you, you’ll need a combination of funding sources to get the money you need to develop your business. You may even want to explore all of the resources listed above.
Whatever you do, however, don’t depend on your personal credit cards for the business start-up money you need. It’s best to wait to start your business until you have the funds you need in place rather than crippling your new business financially and perhaps ruining your personal credit rating.