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