Financing Your Business

There are pretty much only two ways to finance your business, borrowing money or adding investors. Each has their own advantages and disadvantages. If you are thinking about taking out a loan, you can either borrow from a financial institution or you can borrow from a friend or relative. Either way you need to repay the amount of the loan plus any interest. Now there are a few different types of loans that you can get. You can borrow a lump sum amount and repay it back, or you can get a line of credit where you can borrow up to a certain total amount whenever you need it. For start up businesses getting a line of credit is easier. You can also decide to use credit by opening a business credit card. Whenever you use a financial institution for your loan they will want to see a copy of your business plan. This indicates to them how well your business is doing. Also, they will want collateral as part of the loan. If you borrow money from family or friends, make sure that you get the loan amount and the terms of the agreement all in writing. You can also decide to bring on investors. Investors place money in the business in return for part ownership in the business. Unlike a loan they only get a return on their money if the business is successful. However, they get to be a part of the decision making process. Sometimes you can find what are called angels, these are individuals who are looking for businesses to invest in that will get them a high return on their investment. You can also choose to use your home equity as a way to finance the business. You can also take a loan out on your life insurance, your retirement accounts, or any other brokerage account. Each one has different limits about how much can be borrowed or how and when it needs to be paid back. There is one other alternative. Individuals can apply for grants. There are grants available through the government or private foundations. The best known book to look for grants is Awards, Honors, and Prizes by Gale Research. There are also several websites you can search for (www.businessownersidecafe.com/business_grants). You should know however, that applying for a grant can take awhile. Each grant has their own requirements as well. Information from The Idiot's Guide to Home Based Businesses