| I'm often asked: what is the best way to | | | | for that money for many years to |
| finance a new business venture. This question | | | | come.Mortgage The FarmBank loans are next to |
| is usually followed by "So, do you ever | | | | impossible to get if you don't have |
| invest in new business ventures?"The answers, | | | | collateral and a track record of business |
| respectively, are: 1. there is no "best" way | | | | success, which is why many entrepreneurs use |
| to fund a new business; and 2. I do invest in | | | | the equity in their homes to finance their |
| new business ventures, but darn it I can't | | | | business after being turned down for a bank |
| today because I left my checkbook in my other | | | | loan. While this makes more sense than |
| suit.The truth is there are a variety of ways | | | | building a business on a deck of credit |
| to finance a new business and which way is | | | | cards, the financial risks are no less |
| best for you depends totally on your product, | | | | abundant. You must pay this money back |
| your market, your financial requirements, | | | | whether your business succeeds or not, but it |
| your burn rate, and most importantly, your | | | | is a good source of low interest money to get |
| personal and financial situation.So with that | | | | you started and the interest may be tax |
| in mind, here are a few of the most common | | | | deductible (check with your accountant to |
| ways to finance a new business without | | | | make sure).Angel InvestorsAn angel investor |
| hitting old Tim up for a loan. Keep in mind | | | | is typically a wealthy individual who invests |
| that all methods have pros and cons and some | | | | in start up ventures for a share of the |
| (or most) may not work for your specific | | | | ownership. Angel investors are usually the |
| situation. No matter what financing method | | | | first formal investors in a business and |
| you choose thoroughly investigate the ups and | | | | provide the seed money to get the business up |
| downs and don't jump in with both feet until | | | | and running. Some angel investors will write |
| you're sure you'll land on solid | | | | you a check and leave you alone to run your |
| ground.Savings and InvestmentsThe first | | | | business while others consider their |
| source you should consider tapping is your | | | | investment a license to "help you" manage and |
| own savings and investments. I'm a huge fan | | | | make decisions. If you do accept angel money |
| of self-financing when it comes to business | | | | make sure the terms are clearly defined on |
| because it doesn't make you responsible to | | | | both sides. Angel money always comes with |
| others should the business fail. The bad | | | | strings. Make sure you know whether those |
| thing is that it if things do go under, it | | | | strings come in the form of a bow or a noose |
| will be your money that goes down with the | | | | before you accept an angel's check.Venture |
| ship. If you're not willing to risk your own | | | | CapitalistsVenture capitalists are to angel |
| capital you certainly shouldn't be willing to | | | | investors as pit bulls are to Chihuahuas. |
| risk anyone else's.Friends and FamilyAfter | | | | That's not to say all VC are big, bad dogs, |
| tapping their own savings and investments, | | | | but they do have powerful jaws that can chew |
| many entrepreneurs turn to friends and family | | | | up your business and spit it out if things |
| for help. This works well for some, but | | | | don't go their way. VC money doesn't come |
| here's the creed I live by: NEVER borrow | | | | with strings, it comes with chains and locks |
| money from anyone you have to eat | | | | and lots of legal documents. VC always have |
| Thanksgiving dinner with. Nothing causes | | | | the upper hand in any deal they invest in. |
| tension in a family like lending money that | | | | That's just how it works and that's the price |
| is never paid back. And notice I say "lending | | | | you pay to get access to VC money.If your |
| money" rather than investing money. Venture | | | | business gets to the level that VC money |
| capitalists invest money. Your relatives lend | | | | becomes a viable option, don't jump at the |
| you money. They will expect it back someday | | | | first bone a VC dangles before your eyes. If |
| even if they say they won't. Remember, when a | | | | one VC likes your idea, others will, too. |
| loved one invests in your business they are | | | | Present to multiple VC and carefully consider |
| emotionally investing in you. It would be | | | | each offer before you accept the check.Just |
| tough to tell mom and dad that their favorite | | | | remember, no matter how you finance your |
| son lost their life savings because his | | | | business, use the money wisely. Don't buy |
| business went down the drain.Credit CardsI | | | | $1,500 plasma monitors and $1,000 Hermann |
| financed my first business on credit cards, | | | | Miller chairs.Have a very clear plan of how |
| which was an incredibly stupid thing to do | | | | the money will be used and how it will be |
| given the fact that my business could have | | | | paid back.And remember this, the more you can |
| failed and left me with thousands of dollars | | | | shoestring the business, but more of the |
| in credit card debt that would have taken | | | | business you will own in the end.Tim Knox |
| until the year 2099 to pay off. It worked out | | | | |
| in the end for me, but if you decide to | | | | Entrepreneur, Author, Speaker |
| finance your business on plastic keep in mind | | | | |
| that you will be paying extremely high | | | | Tim Knox is a nationally-known small |
| interest rates on the money you've borrowed | | | | business expert who writes and speaks |
| and unless you hit it big you will be paying | | | | frequently on the topic. |