Start-Up Financing for an Unsecured Business
An excellent business idea may not become a reality if you do not have the revenue for start-up. Start-up financing can be challenging, especially if your business does not offer equipment or property collateral. There are a number of ways to obtain financing for an unsecured business. Always weigh each option before deciding which financing model to make use of.
Outside Investors
Outside investors look for new business opportunities in which to invest. An outside investor’s main goal is to make a profit, either at agreed upon periods of time or upon being bought out by the business owner. This type of investor is usually a local person who is interested in the community and building community businesses.
Loans
There are quite a few banks that offer loans to businesses when there isn’t any or much collateral. A convincing business plan explaining how the business will make a profit and how quickly that profit will be made, will be needed to acquire a bank loan. The Small Business Administration guarantees certain bank loans based on the size, location and function of the business.
Trade Credit
A trade or supplier credit loan can be applied for if equipment or inventory is needed in order to start the business. This type of business loan is similar to a bank loan. You will need a convincing business plan, explaining how much and when your business will make a profit. Another option is to convince suppliers to give you the inventory or equipment on credit. Most suppliers will base their decision on both the business and your own personal credit history. This type of loan will allow you to pay for equipment and supplies in installments instead of all at once.
Venture Capital
Venture capital comes from an individual or a group of people who invest in a business solely to gain a profit. Most venture capital investors put their money into businesses that have an extremely high profit potential. After the initial investment, venture capitalists tend to stay involved in the day-to-day running of the business until it is time for them to move on to another business venture. Payment for their services is usually cash or company stock.
Personal Resources
Your own personal revenue is another method to finance an unsecured business. You may have a savings account, inheritance or another source of cash with which to use to start your business. Alternatively, you can use your own personal credit cards to help fund the business. Be careful when using personal credit cards to start your business, as you do not want to have cash flow issues with the added burden of credit card debt.
Ownership Shares
Selling ownership shares in your business, also called equity capital, provides cash for start-up at the expense of losing some control. You can sell ownership of your business to colleagues or family members in the form of a percentage of the profits as well as a percentage of the management responsibilities. Equity owners may also agree to be "silent" owners as long as they receive a portion of the profit.