How To Get Money To Start A Business

One of the first things that you need to consider when starting a business is how you’re going to fund your new business. It can be very hard for you to get the funds necessary to ensure that you get your business off to a good start. So in this article, we discuss how to get money to start a business.

How Much Money Do You Need to Start a Business?

The ultimate question is how much money do you need to start a business? There are several factors to play in this question and the answer is really hard to define exactly. However, here are some considerations for you, which we’ve listed below:

Income: The first thing that you need to consider is how much you want to earn to keep yourself clothed, fed, watered, and your home. Generally speaking, you need to have about 3-6 months' worth of income saved to ensure that you don’t run out of money.
Equipment: While you can save money on your expenses by using some existing funds (like using a home computer), you might need to purchase some equipment to get your business going. Service providers like gardeners, painters, etc. might need this.
Stock: Those that are running an eCommerce business or a shop will need to purchase initial stock.
Marketing: Everything from your website to your social media will need some investment. While these can be small in comparison, it does eat into the budget.
Licenses/permits/business registrations: There are some legal ends that you need to consider when it comes to running a business. You might need to register your business, have a license, and more.
Leasing: Some small businesses need to lease an office or shop floor. You might need to put down a deposit for this.
Staff: If you expand, there might need to be additional staffing costs. These might also include employer tax and employee benefits.

Generally speaking, the amount that a small business needs in their first year can be something around $40,000 plus. Some businesses will spend more than $100,000 in their first year.

However, there are lots of considerations and some people can save a lot of money on their business’ first year’s income.

How to Get Money to Start a Business

Likewise, there are numerous options on how to get money to start a business. You can use one source of income or you can use several sources of information. It will depend on the resources available to you and other factors. So here are some of the options and the risks that might be associated with them, with some benefits.

Personal Savings

One of the most common options for new business capital is to use personal savings. This cash reserve is your money, there is no need to pay it back to someone, and does not incur any interest. Therefore, there is less demand for you to perform well, to begin with.

However, because you are depleting your resources, it can sometimes become very risky should you not earn enough money and therefore, have lost your fallback options.

Personal savings are also very hard to come by. Some people will use inheritances from family members as their starting capital, which we’re counting in this category.

Pros:

• No forms to complete
• No interest to pay

Cons:

• Hard to save up for some people
• Depletes funds for emergencies or if the business fails

Bank/Financial Organization Loan

Numerous businesses will often loan new startups some starting capital to get their business off the ground. There are some advantages to this. For one, you don’t have to deplete your resources to ensure you have the right starting amount and you can set your budget easier.

However, there is a financial cost. There will be interest paid you might need to go through several rounds of negotiations to get the business loan. In addition, your assets can be taken if you can’t keep up with payments.

Pros:

• Simple to understand the amount you have available
• Can sometimes get support from the bank

Cons:

• Costs can eat into profits
• Personal assets are at risk
• Challenging to get a loan in the first place

Borrow from Friends/Family

Some people will get a loan from friends/family and then will pay back the friend/family when they have a chance. Sometimes you can find this very rewarding, especially if your success will help your friend/family member in some way. And there is usually no interest to pay on the ‘loan’.

However, should the business not work out, then the relationship between you and the friend/family member might be ruined. It might lead to legal issues or it can just be awkward to be around them, with family rifts not uncommon.

Pros:

• No interest has to be paid.
• No need to have several rounds of negotiation.

Cons:

• Can harm relationships if business doesn’t work out.

Grants

Grants are when a government or another entity offers some cash to a startup to help them out. Normally there are some stipulations on the grant, such as the business must be working within a certain field, must invest so much in a social enterprise, must be in development, etc.

Grants can also be huge, though there are sometimes repayment terms. Grants can also be harder for the business to access with several rounds of competition to get hold of the grants before the access. And if there are several businesses involved in the bidding, the grant might go to another business and all that hard work is for nothing.

Pros:

• Can get support for the business.
• Grants are often free

Cons:

• There are often stipulations.
• Hard work can be for nothing if the grant is awarded to a competitor.

Winnings

Another, although less commonly used, is winnings from a competition. Sometimes lottery or even gamblers will use their winnings to start a business. While this money is free and comes with no reliance on paying anyone back, there is no guarantee that you will get the money in the first place.

And there is no skill or business acumen required to get the money, which is why success rates are often low.

Pros:

• No repayment.
• Can gain access to large sums of money.

Cons:

• Getting this money is risky in itself.
• Very rare.

Final Word: How to Get Money to Start a Business

If you’re looking for starting funds for your small business, then learning how to get money to start a business is critical. Most businesses have several different funding sources, and this can be good as it reduces the risk associated with the business.