by Jesse Vorton

Created on: June 28, 2010   Last Updated: July 09, 2010

It’s time to zero in on a comprehensive list of alternative sources of small business start-up capital.

Self-financing

This is where the entrepreneur will access their personal savings and loans. Often many small business enthusiasts will start a personal line of credit and apply for cash advances from credit card companies. It is critical that credit card debt be incurred only when absolutely necessary, as exceedingly high interest payments are often sought out by the credit card provider. It should be determined how much of you personal finances you will access, and how much is really needed. You must consider the risks associated with any decisions pertaining to personal finances. Incorporate in your calculations such costs as cost of living i.e. rent, food, etc, and whether or not you can stay on course with a budget.

Family and Friends

There is a wide belief that at least half of all start up money is acquired through friends and loved ones. This is otherwise known as ‘love money’. Set aside your ambitions and dreams, and really look at the implications of borrowing money from those you care the most about. This may even encompass asking a friend or family member to co-sign a loan, which they will be legally obligated to pay off debts incurred by either or signing party. Here are some precautions to consider when borrowing money from friends and family:

-Do not accept more money than the lender can afford

-Put every little detail of the loan in writing

-Include in the loan document, repayment provisions, especially in case of emergencies

-And lastly, do not finalize the loan until the lender has sought out independent advice

Angels

Angels are known to be wealthy persons from the venture capital market that are looking to risk their money in someone’s business idea. In Canada specifically, it has been estimated that angels are responsible for financing at least “twice as many organizations as have institutional venture capitalists”. [1] These investors are often harder to locate, but with some assistance of your local Business Development center, or Chamber of Commerce, you may have luck finding your angel after all.

Suppliers

Many suppliers allow a small business some 30 days until sending a receipt for goods supplied. Some are even willing to add interest fees on, in order to allow you to pay at a later date.

Customers

Customers are a potential source of financing, especially for service businesses. There is no shame in asking customers for a deposit before rendering services or supplying goods. For example if you are in a small construction business, have your client pay for the materials first, before commencing with construction.

Micro-Lending Programs

There are numerous of non-governmental and community based organizations that will to help aid in the development of a small business. Micro-credit is a small loan made to lower income individuals, to virtually sustain their self-employment, or to start up a small business. Often these loans provide an extra couple of thousand dollars.

Government Programs

There are a multitude of different provincial and federal programs that are tailored to assist small business entrepreneurs. Now-a-days, it is believed that government programs are shying away from giving loans, but rather, providing expert advice to the small business person instead.

Other sources of start-up capital include cooperative partnerships, and venture capitalists. Many small businesses are looking for even more innovative ways to finance their small businesses, and with luck will find one.

Source

[1] Knowles, Ron. (2003). Small Business: An Entrepreneurs Plan. 4th edition Canada. Thomson and Nelson. Pg.205.

Learn more about this author, Jesse Vorton.
Click here to send this author comments or questions.