| "body"> | | | | can act as advisors and cheerleaders for your |
| Borrowing from banks is every small entrepreneur's | | | | venture. Remember though that nothing causes |
| nightmare. One gets turned down for bank loans for a | | | | tension in a family like lending money that is never paid |
| variety of reasons, including lack of assets, collateral | | | | back. |
| and business experience. Don't despair, however. | | | | Credit Cards |
| There are several common types of alternative | | | | Many business owners use their credit cards to fund |
| sources of capital for setting up a business available to | | | | their businesses. Credit cards offer the ability to make |
| young companies. | | | | purchases or obtain cash advances and pay them at |
| Savings and Investments | | | | a later time. But as a long-term financing method, they |
| The first source you should consider is your own | | | | can be expensive. Most credit cards will charge you |
| savings and investments. One disadvantage though of | | | | 2% to 4% of the face value of a cash advance as a |
| self-financing is that if things did not turn out the way | | | | "fee" making this method of financing very risky. |
| you want them to be it will be your money that goes | | | | Bootstrapping |
| down with the ship. | | | | Another source of capital for setting up a business is |
| Angel Investors | | | | bootstrapping. It is a way to finance a business by |
| Angel investors are affluent individuals who provide | | | | saving rather than borrowing money. It's being as frugal |
| capital for a business start-up, usually in exchange for | | | | as possible so your business can be started on as little |
| ownership equity. These individuals are looking for a | | | | cash as possible. |
| higher rate of return than would be given by more | | | | The use of private credit cards is the most known |
| traditional investments (typically 25% or more). | | | | form of bootstrapping, but a wide variety of methods |
| Angel investors are an excellent source of early stage | | | | are available for entrepreneurs. Other forms of |
| financing and high-growth start-ups. They are often | | | | bootstrapping include owner financing, minimization of |
| willing to tread where there is too much risk for banks | | | | accounts receivable, joint utilization, delaying payment, |
| and not enough profit potential for venture capitalists. | | | | minimizing inventory and subsidy finance. |
| And since angel investors are often retired business | | | | While bootstrapping involves a risk for the founders, |
| owners and executives, they can also provide valuable | | | | the absence of any other stakeholder gives the |
| management advice and important contacts. | | | | founders more freedom to develop the company. |
| Peer to Peer Lending | | | | Many successful companies including Dell Computers |
| Peer-to-peer lending is a means by which borrowers | | | | were founded this way. |
| and lenders may transact business without the | | | | Venture Capital |
| traditional intermediaries, such as banks. It can also be | | | | Venture capital is not suitable for all entrepreneurs. It is |
| known as social Lending, ordinary people lending | | | | an option for small companies that have a seasoned |
| money. The process may include other intermediaries | | | | management team and very aggressive growth plans; |
| who package and resell the loans--examples are and | | | | however, venture capitalists will rarely invest in small |
| Zopa-but the loans are ultimately sold to individuals or | | | | businesses that have no intention of going public. If a |
| pools of individuals. Prosper.com, which is available in | | | | company does have the qualities venture capitalists |
| the US only, offers business loans for small companies. | | | | seek such as a solid business plan, a good |
| An enabling technology for peer-to-peer lending has | | | | management team, investment and passion from the |
| been the internet, which connects borrowers with | | | | founders, a good potential to exit the investment |
| lenders, for example through an auction-like process in | | | | before the end of their funding cycle, and target |
| which the lender willing to provide the lowest interest | | | | minimum returns in excess of 40% per year, it will find |
| rate "wins" the borrower's loan. (wikipedia.com) | | | | it easier to raise venture capital. |
| Money pool | | | | The venture capitalist objective is to invest in a |
| Instead of a bank loan, borrow smaller sums from | | | | company for a short period of time - say 5 years - |
| several family members, friends, or colleagues. The | | | | and then cash out of the business while making a |
| lenders have no legal ownership in the business, but | | | | significant return on their investment. |