07.12.2009 11:48:37

Investors Network Team

When starting a business, getting enough to start with may often be the biggest challenge. In the current economic climate especially the task of finding the right finance fro your business may be a challenging one. Apart from putting an effective business plan together, which can be done quite easily using the latest business plan software,  the key to any entrepreneur looking for start-up capital will be the get the right deal with which to start the business. Whether you are going to the bank, or choose to use venture capitalists and business angels, the task may seem daunting.

Nevertheless hundreds of thousands of individuals start businesses each year. How do they do it? Where do they get the money to get started? Here are ten solutions for startup funding for a micro-sized business. Some are nearly risk-free. Others involve significant financial risk and should be used with caution. If you need a steady source of income to meet your financial obligations (and keep your family covered by health insurance) start the business as a part-time venture. Don't quit the day job until the part-time business has a steady flow of customers and profits.

Start part-time.

Start the business from home. You can start your business for much less money if you don't have to foot the bill for office space and utilities for an out-of-the-home office. While you may not want to advertise the fact that you work from home, you will have plenty of company. According to the findings of a US Census Bureau study of small businesses, nearly half of all businesses in the US are home based.

Get advance commitments for work. Line up one or two sources of business before you take the plunge. Former employers, if you left on good terms, are often a source of start-up work, or sometimes funding. Big companies that can send you their overflow work or small jobs that they don't want to do can also provide the initial stream of work and income.

Use a venture capital firm. Venture capital firms will often hold huge advantages for your business. Although they may take a stake in your business in exchange for the money provided, the experience, contacts and business know how that they bring to your business will be of enormous advantage.

Get matched up with a business angel. Angel financing is becoming an increasingly attractive option for many entrepreneurs. A business financing solution which first originated from the US, business angels are high net worth individuals who have often made their money from their own business exploits. This means that they can bring their experience for success to your business. The success of their investment in your business will in other words depend on the success for your business. Its a win-win situation. Business angels in South Africa can be found through communities such as Investors network where business angels and entrepreneurs are introduced.

Use a credit card. Using a credit card - if you have good credit - is the easiest way to get money to start a business. Equipment, suppliers, advertising and postage (for mailings) can all be purchased with a credit card. And if your credit card gives you a line of credit, you can give yourself an instant loan (up to your credit limit). But using a credit card to start your business bears some significant risk, too. If you're not careful you can quickly run up a huge credit card bill - a bill you'll be responsible for paying whether your business is successful or not.

Apply for a home equity line of credit. Some banks offer home equity lines of credit that let you borrow up to as much as 85% of the appraised value of your home.  Depending on the value of your home and what you still owe in other mortgages, that can put a significant chunk of money at your disposal for starting your business. The downside: you're putting your home at risk. If the business fails and you can't repay the loan, you could lose your home.

Apply for business loan instead of a home equity loan. Information you'll need to give the bank  includes the: purpose of the loan, projected opening-day balance sheet (new businesses), lease details, amount of investment in the business by the owner(s), projections of income, expenses and cash flow, signed personal financial statements and your resume. You may also need a formal business plan. (If you’re trying to get funding to grow a business you've already started, you'll also need business financial statements for the last three years, and information on receivables, payables, and outstanding debt.) Don't be surprised if the bank turns you down, though. Banks are often leery of lending money to startups.

Ask Your Bank About an government-guaranteed loan. If the bank turns you down for a business loan, ask them if they'll consider your loan through the SEDA guaranteed loan program.  If they agree to do so, they'll forward your loan application and credit information to the nearest SEDA district office, for a decision.

Borrow from family and friends. Family and friends are a frequent source of funding for small businesses. But remember, you have to live with your family for a long time - and you probably want to stay friends with your friends. So don't borrow from unless you have a business plan  and have done enough research to know there is a market for what you want to sell. Be sure your plans provide a way to also pay interest on the money borrowed from family and friends.

Irrelevant of the choice of business financing partner you choose, the key is to have a well thought out business plan, strong market research supporting your idea and its potential demand from the market, entrepreneurs skilled and committed enough to ensure that challenges can be overcome and a winning business strategy considering the market, competitors and of course clients.