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John Preston | johnpreston

Options for Financing and Business Startup Grants

May 10th 2015 at 11:20 AM

It would certainly be more preferable if you have a few million dollars to start your own business. But you shouldn’t be perturbed even if you don’t have that kind of money. There are a lot of business startup grants that you can access to set up your own company.

Owning your business will really give you a sense of freedom like no other. But first, you must prove to your investors that it is really your top priority, and that you have a fail-proof plan on how you will make your business succeed.

Based on a study made by the U.S. Small Business Administration, the second reason why most business fail is inadequate, or ill-timed financing. Poor management is the major cause.

But first you need to understand the two basic modes of business financing.
A)    The first is debt financing which is borrowed money that you agree to pay back at a definite percentage of interest rate and at a particular time.
B)    The second is equity financing, which is selling partial ownership of your company to your investors in return for their cash.

So, to get you the right amount of money to start your own business, here are some of the avenues you might want to explore:

1.    Family and Friends
This is your best source both for equity and loan deals. These people know you and would be willing to ‘gamble’ on your project at lower interest rates or no interest at all.

2.    Bank Loan
A bank loan is much easier to obtain if you back it up by your assets, or with third party guarantors (government-sponsored SBA loans or a cosigner). It’s better to get a line of credit instead of a fixed-amount loan. In this way, you will not be paying interest until you begin spending the loan money.

3.    Angel Investors
These people can fill the gap between friends and family and big capitalists who don’t even consider investing below $1 million. To get such investments, you may need to enlist a savvy financial adviser to negotiate the deal.

4.    Leasing
If you are starting a company that must have vehicles, equipment, or even computers, this is the best source of funding. The supplier will help you explore this option.

5.    Private Lending
This is also a viable alternative especially if the bank rejects your loan. Private lenders are willing to take a look at your business but they will also perform due diligence to ensure that their money will not go to waste.

However, they are more willing to take higher-risk loans as long as they see the potential growth of their investments. This is better than a mergers and acquisition arrangement.

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