Where to Get Money to Start a Business

Whether it is a perfume line, a restaurant or even a lemonade stand, starting a new business can be an exciting time. Oh, yeah, it's also expensive.
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Whether it is a perfume line, a restaurant or even a lemonade stand, starting a new business can be an exciting time.

Oh, yeah, it's also expensive.

Entrepreneurs can get their ideas off the ground, however, without draining their wallets.

Before doing anything, a budding entrepreneur should sit down with someone who does not have a vested interest in their company. Many turn to groups like SCORE, Resource partner with the U.S. Small Business Administration, for help. SCORE is a group of more than 10,500 retired business volunteers who provide business advice and can help organize a plan so that it is investor and lender friendly.

Ridgely Evers, the chief executive and founder of NetBooks, says it is important to have a strong plan because, "Whatever you think it is going to take [financially], you are wrong. Everything always takes longer and costs more than planned."

There are two choices for people when getting financing for a new business: Borrow money through loans or get investors to take part in the company. Drew Tignanelli, the president of The Financial Consulate in Baltimore, Md., says that the financing decision should be based on what kind of company is being started. If it is a small company that will not require a lot of capital, loans are the way to go. If it is a larger company, getting investors may be the better choice.

When it comes to loans, experts say it all comes down to collateral. Collateral can be an established business, or investments and real estate that an entrepreneur already owns, says Tignanelli.

Most banks will provide a small-business loan, as will the government through the Small Business Administration. To get a loan from the SBA, a business plan must encourage future employment. But, Evers says, there is one place not to go for a loan: "Credit card loans are suicide. They are an ugly path of non-resort, not even last-resort."

The other option for funding a business idea is to get investors involved in the plan. This can be a tricky, but also a profitable choice. It is important to keep in mind that investors are only buying into a piece of the company while entrepreneurs are "all in." Because of this distinction, these investors may have different objectives and entrepreneurs should choose carefully when accepting investor offers.

The choice is about the individual, and not their business, because that person will be a partner on a long voyage. There should be a good deal of trust involved. "It should be viewed more like a marriage than a one-night stand," says Evers.

When it really comes down to it, starting a business is long, hard work and no one wants to see it fail.

So, Tignanelli says, "The big key really is to think hard about the plan before you start and ask yourself, 'Is this business going to make money?' If the answer is yes then don't waste any time getting started."