6 Ways To Fund Your Startup's First Year

By Tim Parker | July 20, 2012 AAA
6 Ways To Fund Your Startup's First Year

If becoming an entrepreneur has always been a dream of yours, there's probably one key reason why you haven't followed your dream: money. Some businesses may require very little capital while others may need a lot. Here are a few of the most popular ways to fund a startup's first year.

The Bank
When people need money, the first place they think of is a bank. Since the 2008 and 2009 financial crisis, even existing business owners have found it difficult to secure bank loans. Although lending to larger companies has improved, small businesses or startup loans have not recovered as well. If you're turned down by a bank, try a credit union. Credit unions are non-profit community oriented institutions similar to banks. Credit unions are more likely to consider you for a startup loan.

SEE: 6 Benefits Of Using A Credit Union

The Small Business Administration
The SBA is a U.S. government-sponsored agency dedicated to the growth of small businesses and entrepreneurs. Through local banks, the SBA offers startup loans to entrepreneurs that are easier to qualify for than traditional bank loans. The loans are easier to get because most of the loan is guaranteed by the SBA which puts the bank at little risk.

Grants
Although there are no startup grants available from the Federal government, some states and non-profit associations offer grants to entrepreneurs who are starting certain types of businesses. If you're planning to open a non-profit or ecofriendly business, there are numerous grants available. Many other types of businesses qualify for grants as well.

SEE: Canadian Grants And Tax Credits Fund Education

Incubators
In 1956, a hardware store manager converted a warehouse into a place where business owners could rent space and gain access to experts willing to give out business advice. One of his early tenants was a chicken processor. After seeing little chicks running around the warehouse, he called his idea an incubator.

Today, incubators are often nonprofits designed to teach people to be entrepreneurs as well as help them to sustain their business through the tough early years. Often, incubators are locally sponsored with the hopes of drawing new talent to the area. Not only do business owners receive advice, funding often comes with it.

Mom and Dad
Mom, Dad, other family and friends have long been a popular funding option. Although it's awkward asking people you know for money, a study found that friends and family gave three times more than venture capitalists and angel investors. Instead of asking for a loan, consider offering a stake in the company.

Crowdfunding
Recent legislation has opened crowdfunding to most future entrepreneurs. Crowdfunding allows large amounts of people to contribute smaller amounts of money to your business. Although the rules regarding crowdfunding are still in development, most believe that the Internet will be the main vehicle used to secure funds.

Crowdfunding won't be appropriate for everybody and the rules might make this too complicated for some business owners. For others, this could represent a large source of funding. Until the United States SEC publishes the rules, crowdfunding still remains illegal.

SEE: How To Use Crowdfunding To Start Your Business

The Bottom Line
Starting your business might not take a lot of capital, but keeping it open through the first couple of years may be difficult without some extra financial help. Consider all options before accepting funds. Loans involve paying interest and sometimes require giving up some of the control of your business.

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