Finding the finances to start your first business

The benefits of entrepreneurialism are tempting: freedom and flexibility, a chance to profit off your own hard work, and potential rewards far beyond those possible by way of a conventional career. But launching a new venture takes start-up capital and pulling together enough money to give yourself a practical runway can be a challenge. Here are five options that others have used to succeed:

Go to the bank

You need money; banks have money. It’s a match made in heaven . . . maybe. You can make an appointment with a bank or lender, but it’s going to take some work up front. You’ll also want to carefully weigh the pros and cons.

Bank funding requires collateral and a convincing business plan. You have to convince the lender that you’ll be able to pay the money back, and your business is likely to make money in the first place. That means you have demonstrable expertise, you’ve invested in crafting a professional, detailed business plan that you can share, and you already own something of value (usually a house). It also means that you’re gambling against your future, and if your business fails, or fails to grow and produce a profit fast enough, you stand to lose a lot.

There’s also the interest to consider. Credit and bank loans usually require regular payments against the loan, and the interest keeps accruing until the whole thing is paid off — meaning you’re paying extra for the privilege of having the money now. It works like your credit card; you don’t have to pay it all off now, but it costs you more the longer you stall, and you do have to keep up a minimum payment.

Taking out a loan to fund your start-up is a risk, and you should limit risk unless you have a plan to mitigate it. Maybe you have clients or customers lined up and can rely on a steady workload. Maybe you have lots of equity and can afford to lose some of it without being completely ruined if things go sideways. Maybe you have a business that will start producing and making back money very quickly, and just need the quick up-front cash injection to get started. The great thing about loans is, once you’ve paid them off, they’re done. You still own your business, and you get all the profits of your work from that point onward, so they do hold some appeal over investment loans.

Find investors

When it comes to investors, things work a bit like a bank loan, except investors generally want an interest in your future success. They may be willing to take a bit more risk than a bank would in order to continue making money off of your work in the long term. An investor often has a specific area of investment they’re interested in, and their expertise in that area may make them more confident that you could succeed than a bank would be. You still need a convincing business plan, but collateral is less