Where to find the money
Try a friend, or family member, or a loan if you can qualify
So you want to start a business. You've got a great idea, your business plan is mapped out, and all you need is money.
What worked for Bill Gates will most likely not work for someone opening a restaurant. Those with no business experience might have better luck looking for small loans and seeking money from family and friends. A savvy tech startup could have an easier time luring a venture capitalist. But even if you find investors willing to finance your dream, they may want you to give up management control.
Before you start exploring financing options, make sure you have a detailed business plan, as the rate of failure for new businesses is high. "The entrepreneur needs to figure out what they are going to sell, who will buy it and why, and how they are going to conduct the business and how much it will cost them to provide the product," says Jim Hammersley, director of loan programs at the Small Business Administration. Visit one of the SBA's 63 local small-business-development centers to get help.
There are basically three ways to finance a business: personal funds, taking on debt, and equity financing.
The first step is to figure out how much of your own money you can spare. Then you may want to approach family and friends before contacting banks and investors. "It's wise to tap a variety of financing sources," says David Hsu, a professor at the Wharton business school at the University of Pennsylvania. "That proves that you can convince a broad band of people that you have a good business idea." But make sure not to overextend yourself. "If your business takes a downturn, you should have a nest egg to fall back on," says Bob Walter, author of Financing Your Small Business.
Personal funds. Jessica Nickels, a 27-year-old mother of two, was working as a house cleaner last year when she decided to open up an eclectic store in Marietta, Ga. She put aside $200 a week to buy used clothing and other knickknacks. She partnered with a friend, who used his credit card to help pay the rent for what is now the thriving Kaleidoscopes Consignment Shop. "We've already turned a profit," she says.
Owners of smaller firms--those with sales under $500,000--and businesses under 10 years old are most likely to rely on credit cards, according to the National Federation of Independent Business. "A credit card with a $10,000 limit could provide you with enough working capital to purchase equipment or furniture, or pay for a marketing campaign," says Erin Fuller, executive director of the National Association of Women Business Owners.
Pay close attention to the interest rate when using credit cards, and pay off as much as you can, or you may thwart your ability to expand. "You might be less able to qualify for loans because you have already burdened your credit rating with high-interest-rate credit cards," says Maria Otero, president and founder of Women's Venture Fund in New York. Another option: a home equity loan.
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