What are Your Capital Financing Options?

Money still doesn’t grow on trees, so if you are looking to start your business venture and you do not have a ton of capital on hand (because who does these days?), here are some options and alternatives for securing the capital you need to get your business off the ground.

1) Uncle Jim. We are serious. Many times, family and friends may have, together or individually, some spare change laying around that they are looking to invest. They think your idea is stellar and want to get in on the ground floor. Getting loans or investments from your inner circles certainly takes the uncertainty out of whether your credit is worthy enough of tight repayment schedules. Of course, you should be prepared to be in debt to your family and friends and to expect that they want you to keep them in loop as to your progress, or lack thereof. Uncle Jim may also want a spot on the board of directors in exchange for his contribution. Keeping it in the family definitely has its pros and cons.

2) Seller financing. If you are looking to purchase an existing business, some sellers are now offering seller financing where you pay some amount upfront and the seller gets a promissory note from you for the rest (plus interest of course). The benefit of this method is that you do not have to outlay a lot of money at the beginning, nor do you need to go through a bank to get separate financing. The downside is that you are still tied to the seller and their promissory note, the terms of which they will likely get to dictate.

3) Borrow from yourself. Do you have a 401K or IRA laying around? It is possible to get a loan from these funds to start up your business. In one respect, you are also diversifying your funds by investing them in a new venture (yours) that if profitable, makes your holdings that much better. Cons of this method include possible tax implications, and of course, if your venture does not pan out, you can lose a good chunk of your retirement funds in the process.

4) Online borrowing. The internet has changed the face of so many transactions in our lives and raising capital is high on the list. Crowdfunding of projects has produced spectacular results for many and it could also be the right source of capital for your venture. Other sources of online borrowing include peer-to-peer networks where individuals seeking lower amounts can request a specific amount that is then funded by other individuals who are paid interest as the loan is repaid. Cons of this method include not really knowing who is lending you money and limited options for people with bad or mediocre credit.

You have probably heard of angel investors and venture capitalists as well. These investors are usually interested in high money, high risk ventures or the Next Big Thing. If you have the Next Big Thing, by all means consider seeking out these forms of capital. But, the average small business will do just fine with the aforementioned four alternatives.

No matter what size your business is or you would like it to be, Trembly Law has the attorneys you need to help you realize your dreams. We have experience in all matters relating to business including contracts, startups, and financing.

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Written by Brett Trembly

Brett Trembly

In the South Florida legal community, Brett sits on the Board of the South Miami Kendall Bar Association, the Florida Bar 11th Circuit Grievance Committee, volunteers on the Florida Bar Young Lawyers Division Mentoring Program, the Dade-County Bar Associations Rainmakers Committee, and annually volunteers for Miami-Dade County’s Ethical Governance Day.