IV. Ingenious Funding ideas for Financing Your Start Up
Method 6: Use Windfalls
Sometimes when people get an unexpected windfall or otherwise come into some extra cash, they splurge with the cash. Maybe they use it for a vacation, for that big screen TV, or for some other personal pleasure.
However, now that you’re thinking about starting up a business, the first thing you should think about with regards to your windfalls is how the money can be applied to starting or growing your business.
So, what are we talking about with regards to windfalls? Here are a few examples . . .
An inheritance. Ugh, this is something you probably don’t want to think about. But, inevitably, the people close to you do die. And when this happens, you may get a check. It’s not the type of thing that makes you want to dance in the streets. But using the money to build a business that helps others is a wonderful way to honor your loved one’s memory.
Winning the lottery. You don’t need to win a million dollars in order to do something great. Even smaller winnings such as a thousand dollars or so can be put to great use in starting up your business.
Getting a tax refund. You overpaid on your taxes last year, so this year you’re going to get some money back. Whether it’s a few hundred dollars or several thousand, you should earmark it for your business start up.
While not exactly a windfall, another thing you’ll want to do is set aside money from loans that you’ve already paid off. In other words, if you’re used to making a payment on a loan every month, keep making that payment… even after the loan is paid off. Except instead of paying it to a loan company, pay it into a special savings account.
For example, let’s suppose you were paying $500 on student loans every month. Once you’ve paid off that loan, you can start paying the $500 into a savings account. You can then invest this extra money in your business.
It is important that you set up a savings account just for this purpose. And, ideally, you should have the new savings account automatically transfer money out of your checking out every month – just like a bill. Otherwise, that extra money is likely to just be absorbed into your regular monthly expenditures.
Want to make your savings goal official? Then open an account up at SmartyPig.com, which is a site that allows you to save for specific activities or events, such as launching a business. Not only can you set up direct transfers from your existing accounts into your new savings account, but SmartyPig also makes it easy for your friends and family to contribute to your savings account, too.
Now let’s look at another common method for getting cash.
Method 7: Borrow Money From an Institution
Once people have exhausted all their other fundraising resources, they sometimes need to get a loan in order to bridge the gap between what they need to start their business and what they currently have on hand.
However, this doesn’t mean seeking out soul-sucking venture capital money or even money from angel investors. Instead, it means seeking out money from sources that don’t require you to brand the loan agreement into your skin. These alternatives include:
Credit cards. This is expensive money. But if you only need a relatively small amount to get started – such as $1000 for computers and similar equipment – then you might decide to charge it on a credit card.
You might even look into applying for store charge cards, which sometimes offer no-interest financing for six to twelve months. If you pay the loan off before the term expires, then you the loan is basically free since you won’t have to pay any interest. Keep in mind, however, that all the interest will likely accrue and show up on your statement as soon as the term expires… in which case you are back to borrowing expensive money.
Business loans from banks. Keep in mind that if you walk into a bank to secure a business loan, then you’re going to need to produce all sorts of paperwork, including a business plan.
General loans from banks. You can usually secure a smaller loan from your bank for general purposes, in which case you don’t have to produce all the necessary paperwork. This is particularly true if you can put something up to secure the loan, such as an existing certificate of deposit (CD) that you hold at the same bank.
Loans and grants from business-related institutions. If you live in the United States, then the first resource you’ll want to check out is the Small Business Administration. The SBA.gov has loan programs listed, as well as resources pointing you towards other sources of funding such as grants. You’ll find that certain industries have quite a bit of money available (such as those developing greener energy technologies).
If you do borrow money, make it a top priority to pay it back as quickly as possible. Because the longer your loan lingers, the more money you’ll pay in interest and fees.
And now let’s have a look at one final way to raise the cash you need.