July 11, 2011 Posted by: Tech CU
Bootstrapping (using any cash you can find). The very term evokes shudders as I recount the days of my husband starting a business. It is, however, one of the many ways budding entrepreneurs fund their businesses. Even such lauded names as Google and Facebook were once small startups looking for cash – hard to believe, I know.
Google founders Larry Paige and Sergey Brin used personal credit cards to make their way through the first two years of their company. Other forms of bootstrapping include using personal savings and home equity lines of credit. The danger is that just in case you don’t turn into the next Google, you could have a massive amount of debt on hand to pay down.
Other ways to finance a startup? Well, there are loans from friends and family, which are usually transacted in a less formal way. You’ll need to write up some kind of contract to ensure no misunderstandings. The return for those willing to support you early on is usually a small amount of equity in the company. This, too, should be in writing.
Angels are another option. These are wealthy individuals who could put in anywhere from $50,000 to $1 million. Angels are usually more relevant a bit further down the line in your company’s development (perhaps you have a sales pipeline or have created a management team) and they will require a formal business plan. Angels will also most likely require a larger chunk of equity in return for the investment than a family member. After all, they are taking a big risk providing money to a very young startup. And, this risk needs to be rewarded.
Finally, there are financial institutions like Tech CU. Traditional loans are quite difficult to obtain – mostly because a bank or credit union will require significant collateral and you’ll have to prove your ability to pay the loan back. Brand new startups often can’t offer anything of true value so early in the game. There are, however, SBA (Small Business Administration) loans. These are provided through financial institutions but are guaranteed by the US government – meaning that it will be paid it back.
Founding your own company can be thrilling, stressful, exciting and demanding. Gaining funding is often one of the biggest challenges. Explore your options, talk to friends, discover what’s out there.
Tech CU now offers SBA loans. To determine which SBA loan product is right for you, please fill out our quick online form. You can also contact us by phone at (800) 448-1467.
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