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Does Your New Business Have Sufficient Capital?
All businesses that fail do so for two universal reasons: lack of working capital or lack of technical expertise. If you have the working capital, you can often hire the expertise you need to be successful. If you have sufficient expertise (and the ability to show it off, somehow), you may be able to attract sufficient quantities of working capital - usually called venture capital if it's not a traditional loan. Many small businesses start with the attitude that they will simply generate the capital required out of the profits of their new enterprise. If you are delivering newspapers on a used bicycle, this might be a worthy strategy. For most other businesses, it isn't. You need more than just a great idea, and the willingness to take action. You need working capital. Capital to launch small businesses comes from almost as many sources as there are people. Some of the most commonly-used sources are: 1. The proprietor's own stored wealth This may be cash, or stocks/bonds that are liquidated. It may be the equity in a personal residence the new owner borrows against to get started. It may even be personal property that is liquidated (ebay or craigslist sales for example) in order to provide sufficient capital to get things going. 2. Friends and Family A business owner's circle of influence is often the first stop for obtaining capital outside of their own resources. Hitting up mom and dad, brother Tom, or that long-lost friend from high school who is already rich and feels sorry for them (and has helped on every lame-brained scheme to date) Co-workers are often gluttons for punishment in this arena, as can be old drinking buddies or even fellow worshipers. 3. Credit Cards This is by far, one of the most costly and riskiest of capital sources, as the interest rates are some of the worst in the capital marketplace. They should be used only in an emergency or for an asset/expense that the business might not survive without it. 4. Small Business Administration Loans This is a difficult and lengthy task - going after a SBA loan. If you aren't planning to start your business for 6 months to a year, this is one option to consider. It will likely take that long to accomplish, if you get it at all. The rewards are great, however, and this option should never be ruled out. 5. Regular Bank Loans These are tough to get unless you have great personal credit and ideally, a long and excellent history and personal relationship with your banker. It's easier if you have been the successful operator of a small business in the past. Banks like to see demonstrated proof of the ability to repay - a tall order for an upstart company. 6. Venture Capital This is a tough bunch to impress. Think about it. They spend their days entertaining every kook and nutcase in your area about the "next big thing" Do your homework. The more documentation and "proof" you have to offer, the better your chances of even getting a word in edgewise. It will be the biggest selling job of your life. If you can convince a group of VCers, you will probably be able to sell anything. |
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