by Natalia Jones

Created on: March 20, 2010

Arguably the most important aspect of starting a business is finding the capital to fund the idea. In a sense, everything is hinged on whether or not the eager entrepreneur can get together enough money to get the idea off the ground. Sure, business plans and market research are extremely important but they are useless without the capital to invest in the business, so securing funding can be called the most sensitive of all the issues that a new business owner must attend to.

Take a look at the following ideas for how to raise start up capital for a small business.

Ask Friends and Family

The most common way to fund a new business is to ask friends and family for a loan. If you have friends and family with a little extra stashed away they can be a valuable resource to your business because they presumably won’t demand to see a perfectly laid out business plan or projected financials for your new venture. This doesn’t mean however that they should be taken advantage of. Before you accept money from your loved ones make sure they understand what it will be used for and how soon they will be able to be repaid. If these things are not clear upfront your financial arrangement can put quite a strain on the relationship.

Look for Angel Investors

Getting money from an angel doesn’t have to be a celestial experience. There are angels on earth who have the means and the inclination to make an investment in your new business if you prove to them that it is going to be worth it. Angel investors, like venture capitalists, inject money into new business ventures in exchange for an equity stake, but unlike venture capitalists, which use other people’s money, they use their own. This means that they are more likely to be open to different ideas but it also means they are traditionally more careful. However, if you find an angel that likes your proposal you can get financing for a lot less hassle than going to the bank.

Approach the Bank

Sometimes the best place to find financing is the obvious place. Commercial banks will grant loans to start up businesses, but they require a host of documentation to support their approval. They will need to have a formal business plan complete with projections and forecasts of sales figures and profit amounts. They may also need to see proof of your research as well as a product sample (if applicable). The rate of interest may not be the most competitive but your personal credit history may be able to score your business some points towards a more favorable rate.

If you have a great business idea, it is best to think through your financing options thoroughly before choosing a direction. Each method has pros and cons that need to be assessed before you accept any money to start your business.

Learn more about this author, Natalia Jones.
Click here to send this author comments or questions.