How to Acquire the Capital for a New Business
I could retire if I received a dollar every time an aspiring entrepreneur asked for sources of grants to start a business. In fact, that’s the most common question asked of the toll-free Answer Desk of the U.S. Small Business Administration. Grants imply free, gratis, no strings attached, no repayment needed. Honestly, who’s going to give money for an untested idea to a person inexperienced in running a business?
Acquiring the capital for a new business is one of the most difficult tasks facing the entrepreneur. Banks want companies to have two to three years of profitable track record before approving a loan. So loans usually are personally guaranteed: credit cards, home equity loans, and even community development microloans. After talking with hundreds of business owners all over the country for years, it’s obvious that some financial institutions are friendlier to fledgling entrepreneurs than others. The same is true of other likely sources of start-up capital. Some families would hock everything to help finance a relative’s venture; some wouldn’t invest a dime in a life-or-death situation. Some friends are eager to help; others flatly refuse.
In the absence of institutional capital and loans, the start-up entrepreneur must be creative and thrifty. Virtually all the business owners had to put personal capital into their ventures, especially in the early stages. Consider some of the ways these owners acquired that capital: They sold personal possessions, cashed out retirement savings, tapped their talents, worked multiple jobs, entered contests, and more. Equally important, they were disciplined in diverting money from other desires to their business dreams and in managing undercapitalized companies.
Some communities and states have financing programs for businesses. Scout around your geographic area for ones that might help your company. Just be aware of the reasons politicians are willing to put public tax money into private businesses. They expect that they are investing in more jobs, economic growth, and poverty alleviation. Your business idea will need to provide those results in order to qualify for most public programs.
Help Yourself before Asking Others
People who have a passion or necessity to start a business often find personal resources they didn’t think about previously. It’s not always about how much money you need to get started, but how little can you get by with. Fledgling business owners turn to their own piggy bank, work extra jobs, start their business part time, or tighten their belt so they can live on a spouse’s salary while getting a new venture off the ground. They may even put their future retirement at risk by tapping pensions and retirement savings accounts.
These personal investments are usually crucial in seeking outside funding. Outsiders don’t want to risk their money with someone who’s not willing to put his own money on the line.
Brandon is a finance consultant and part time blogger who has written this article for Tom Gores Chairman and CEO of Platinum Equity, a private equity firm headquartered in Los Angeles.