For many, the dream of starting a business, being one’s own boss, and becoming profitable is truly a life goal. There is much that goes into developing a business idea, creating a business plan that will work, and then moving forward. Unless a prospective entrepreneur is independently wealthy, it is possible that one of the necessary and critical actions that a future business owner must do is secure funding for their venture. Entrepreneurs should not let this financial hurdle inhibit their dreams, as securing financing is just one of the many challenges hat come with owning your own business. Understanding what financing options for startups are available can assist business owners with important financial decisions. Working with a New York business attorney at Ferlito Law Group can help entrepreneurs protect their legal and financial interests. Contact an experienced attorney at Ferlito Law Group to learn more today.
Bank Business Loans
Financing options for startups can come from several different sources, however, obtaining a bank business loan is often a first idea for many entrepreneurs when they begin their journey. However, this route to secure capital for a new business can be a more challenging task than often initially anticipated. Banks are required to comply with extremely complicated regulations and exhaustive requirements, which often makes it very hard for small businesses to get the approval for funding that they need.
When it comes to using the bank as a funding source, be prepared for the bank to ask for a snapshot of a robust business that has already been functioning for several years in an upward trajectory. Also, the business should exhibit a trend that is projected to continue to ascend. In most cases, a business will have to show that it has been operating with some amount of prosperity for at least five years. The challenge with this is, that for startups, there is no such history of business operations. As a result, the bank has to take a risk on a new business without any documented positive outcomes, and this is oftentimes too much of a risk for a bank to be willing to make. Because of this, fresh, new, and unproven businesses typically will not have great success obtaining bank business loans.
Alternative Financing Options to a Bank
After experiencing just how difficult it is to get approval for a bank business loan, a startup business owner may feel deflated and dispirited. Considering other alternative funding sources should be the next step in the process. A business startup lawyer at Ferlito Law Group can help a new business owner learn more about what other funding sources may be. Some of the options below detail just a sampling of other avenues to potentially obtain necessary essential business funding.
Friends and Family
Most advice from experts will indicate that it is not recommended to mix business with personal relationships. However, sometimes these arrangements prove profitable for all parties involved. When soliciting funds from friends and family members, one should be cautious, strategic, and respectful. Behave professionally by giving a clear plan as to what is needed and why, provide a defined and detailed business plan, discuss repayment options, have all contracts and agreements put into writing, and if funding is extended, proactively keep the investor up-to-date on what is happening with the company. Remember, money can change many things – including relationships. If business speculation does not pan out successfully, the nature of the relationship may be irreparably harmed. Therefore, weighing the pros and cons of taking a business risk using a loved one’s investment is something to think long and hard about.
Community Development Finance Institutions
There are thousands of non-profits that exist to provide more accessible alternative funding opportunities to prospective businesses offering terms that are much more tenable. Community Development Finance Institutions (CDFI) can specifically support those in economically disadvantaged communities. Consider reaching out to these non-profits to see if your business will qualify for these alternative funding opportunities.
When a company can be clearly shown to more likely than not have a high growth future, but the company does not have collateral, acquiring funding from a venture capitalist may be appropriate. The venture capitalist group that provides capital gets a portion of the ownership of the business in return.
Unlike a venture capitalist who tends to be a large company, angel investors by contrast are individuals that usually provide funds for startups that have not yet shown provable growth. According to the Angel Capital Association, angel investors are “critical initiators of startups and job creation.”
Even though the principles and practices of crowdfunding date back to the 1700s, in modern times, the first successful record of such an event happening was in 1997. In the year 2000, the first platform for group fundraising was established and this method of financing only grew from there. In 2011 alone, it was estimated that crowdfunding revenue was as high as $1.5 billion. Crowdfunding continues to steadily increase in popularity as a strategy to get ahold of necessary funding for various up-and-coming enterprises. Startup businesses can obtain small investments from a larger number of sources to get their companies’ off of the ground and operational. Once a business proves profitable and successful, the company has a greater ability to make presentations for more substantial investments.
Speak to an Experienced and Dedicated New York Startup Business Attorney Today
The above financing options for startups represent just a sampling of the many ways that a new business can get the funds necessary to become operational. There are numerous paths that prospective business owners can attempt to get funding for their ventures. For help with financing or other business-related issues that startups encounter, please consider calling Ferlitio Law Group to speak with an experienced New York business lawyer today.