20 Ways to Finance Your Business Startup

Tuesday, July 17, 2007 at 3:00pm by Site Administrator

Trying to finance a startup is always an excercise in masterful cash flow management and fund-seeking. Here are a number of traditional and non-traditional ways to get financing. Some are a bit more desperate than others. A couple generate capital but leave no time to use it. A few apply true bootstrapping principles by essentially building on very little capital and reinvesting all earnings until you have the amount you feel you need to start the business you’ve been dreaming about.

  1. Work overtime.
    Some employers have no weekly overtime limits, though the government does. While this method may earn you more money, it also pushes you into higher tax brackets without the time to enjoy it. Do this only if you don’t plan to start your business for several years or have no other choices.
  2. Ask for a bonus or raise.
    Overperform at work, then write up a list of “11 reasons I deserve a raise”, explaining to your boss what you’ve “done for him/her lately.” If it works, you still move into a higher tax bracket, but hopefully you haven’t added more work hours. You may have additional, stressful responsibilities, though.
  3. Get a 0% balance transfer loan.
    If you’re in the United States especially, you’ve no doubt received loads of offers for 0% balance transfer loans. If you have a good credit rating, you can sometimes receive a balance transfer check as a loan for the full amount, which you can do whatever you like with for X months. That is, it may not have to go towards credit cards or other debts. (Some issuers do have restrictions.)

    Depending on the offer, X might be 6, 12, 15, 18, or 24 months. If you do not pay the loan off in that time period, you start paying a relatively high interest rate. So if you think you can start a business in that time period and make it profitable, this is a funding option.

  4. Apply 0% balance transfer arbitrage.
    Zero percent balance transfer arbitrage is a variation of 0% balance transfer loans. The primary difference is that instead of using the balance transfer check to pay off debts, you use it to invest in something that is guaranteed to earn money before your loan is due.

    For example, if you’re offered an 18 month 0% APR balance transfer loan for $30,000, what you do is open an online savings account (OSA) and deposit the money for, say, 16 months at 4-5%. Before the loan comes due, you close the OSA, pay off the $30,000 loan, and put the interest towards financing your business.

    There are pfbloggers (personal finance bloggers) claiming to have received such loans totalling over $100,000 – all at 0%. While 5% isn’t a lot, at that loan amount, it adds up. This is a great way to leverage OPM (Other People’s Money), provided you are not tempted to buy something and can pay the loan back on time. Otherwise, it could bankrupt you.

  5. Consolidate debts.
    Obviously, you want to be responsible with your credit card debt. Overloading more debt isn’t the best way to start a new business. On the other hand, if there’s any way that you can consolidate your currrent debts for a lower monthly payment based on a better interest rate, do it. The amount you save each month from reduced interest rates could be used towards starting a business.

    If your credit rating is poor, you obviously have some work ahead of you, but you can rebuild your credit.

  6. Bootstrap and reinvest.
    Bootstrap a small business, possibly online, using minimal capital. Reinvest the profits to fund the next startup. Stairstep your profits to higher startup capital, until you have enough for your “real” idea.

  7. Sell shares.
    Once you prove yourself in some initial startup (while moving towards your real passion), bring your success to the attention of friends and family. Then offer them a block of private shares for, say, a $1000 investment each. Do you have ten or twenty friends or family members that might be interested? Would $10-20K get you started. Bootstrappers can often get started with less. Just make it clear to your private investors when they might expect a return and what their cut will be. If you don’t expect a return in five years, let them know that now. Formalize everything, or risk destroying relationships.

  8. Borrow from your registered retirement plans.
    Countries that have a registered retirement plan often allow you to borrow on your savings for specific uses. If you have a sizeable retirement contributed to by your current/ previous employer, you might consider borrowing. The drawback is that if you withdraw funds, you often have to pay income tax immediately on the amount. Depending on your tax bracket, it might not be worth it.

  9. Borrow from a life insurance policy.
    Borrowing from your life insurance policy isn’t a good idea, especially if you have dependents, but you can often take a loan out on it. And sometimes it’s worthwhile.

    To wit, Honest Ed Mirvish, a much-loved Toronto business man who passed away last weeky at 92, moved from the US to Toronto in the late 1940s. He cashed in his wife’s insurance policy for Cdn$247 and started the still-standing landmark Honest Ed’s department store. It had the most incredible bargains and helped many poor Canadian immigrants, amongst other citizens. Much later, as a multi-millionaire, he paid for two theatres to be refurbished in downtown Toronto for several shows. One was done at an extra cost of $5 million (if memory serves) to accomodate a real helicopter for Miss Saigon.

    Imagine had Mr. Mirvish not cashed in that insurance policy. Might he have been running some mom and pop shop instead? Probably not, but you never know.

  10. Refinance your mortage.
    Refinancing your mortgage is quite extreme and simply scary, unless you’re 100% certain of the success of your idea. Nevertheless entrepreneurs with vision, who were driven and disciplined have made it work. Just be sure of yourself, as doubt can kill success. You don’t want to be out on the street, literally, if something goes wrong. Though if that happens, you might be inspired by The Pursuit of Happiness.

  11. Get creative.
    Have some collectible items in the house, taking up space? That full-pattern china tea set grandma left you might be worth more than you think. Or maybe you have a few odds and ends of furniture that you can sell at the flea market. Or at Antiques Roadshow. If you’re really hands-on, you might pick up items at flea markets, fix them up and resell at a profit.

  12. Give it up.
    Or maybe you have some big-ticket items you can give up. Say, get rid of any extra vehicles, or replace the one you have with something more fuel-efficient. I don’t recommend giving up a vehicle entirely. Entrepreneurs have a tendency to need a car, unless they’re based entirely online. Or have come up with a new mode of transportation, such as the extreme stilts in the video below.

  13. Use eBay to generate some funds.
    Skip the flea markets. People are making huge profits on eBay, and honestly at that. The key is to find quality items and sell them at a profit with good descriptions and photos. One guy I met in 2003 sold $100 pens that cost him $16. That year – a bad one economically – he grossed $300,000 (although that was mostly expenses). Normally, he made $500K to a million per year, gross, on a variety of very select items.

    Even if you don’t attempt his scale, a few extra hours per week of effort on eBay might generate a few thousand dollars extra capital per month. To save time, you can often have items drop-shipped, though that will cost you.

  14. Get a business bank loan.
    While most bootstrappers do not use/want business bank loans, that does not mean it’s not an option. Of course, if you’re only in the idea stage, it had better be one unique idea that no one else but you can do. Otherwise, you need some proof of concept.

  15. Find venture capital.
    Venture capitalists are more likely to give out money for something at an idea stage than banks, but again, it had better be one solid idea. And if you’re really good with generating salable ideas, you might find yourself as an Entrepreneur in Residence.

  16. Invest in the stock market.
    For experienced investors, it is possible to raise business capital in the stock market. But if you day-trade or get into commodities, etc., you’d better have big brass ones and a healthy understanding of these financial dangerous games.

  17. Invest in government bonds.
    Government bonds are much safer than stock marketing investing, though the maximum return may be low, and take several years to mature.

  18. Consulting.
    Are you in a salaried career position now? Have you considered consulting? Not everyone who consults ends up earning more than as a salaried employee. However, you may have periods between contracts to work on your ideas, and monies earned are typically subject to different income tax rules. Talk to an accountant. And keep all your receipts.

  19. Partner up.
    A good partner is hard to find. Some people prefer to only work with friends, some never would. But two people have many more friends and relatives than one person. (See “Sell Shares”, above.) If the partnership shoe fits, wear it.

  20. Leveraging new media opportunities.
    The Internet has levelled the playing field somewhat, offering many opportunities to earn money. Take what you make, channel it into something else. For example, what I am hoping to do is use my freelance online writing earnings to invest in properties, which I’ll turn around and hopefully start a film production company. It’s a ten-year goal that I’m on my 17th year in, though I’m getting closer, now that I work online.

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