How to Raise Money to Launch a Business

Written by  //  March 11, 2013  //  Small Business  //  Comments Off

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You have a great business idea in mind, but you lack the funds to launch your enterprise. Unfortunately, there is no money tree that you can shake to get what you need. If there was, you would be out there picking off the dollars and starting your business in no time.

Fortunately, there are ways for you to start a business, provided that you are willing to consider one or more points, including some that may put your personal finances at risk:

1. Your retirement plan. You have been planning for your retirement, right? Tens of millions of employees have 401(k) or 403(b) retirement plans, some people have built up a significant amount of money toward their later years. Those monies can usually be tapped to provide the cash you need to start your business. Keep in mind, however, if you are under 59 1/2, then you will need to take these funds out as a loan or pay taxes on it. Repay your loan as soon as you can.

2. Ask family members. Yes, you hate to do it, but when it comes to family, the people that know you best may be the ones to go for when needing start up cash. Swallow your pride and consider whom to approach. There may be several people that can help provide seed money — consider multiple sources as you spread out risk. Even though you are dealing with family, get everything in writing. If you need time to get your house in order, ask for a one your abatement in payments or at least until you are able to make a go of it.

3. Tap your home’s equity. Chances are you own a home. If so, you may have built up equity, money that you can tap to finance your enterprise. Debra Neiman, writing for Entrepreneur advises caution here, noting that borrowers need to balance risk against potential reward. Essentially, you are putting your property on the line when you take out a loan or a line of credit. If you default here, the bank can take back your home!

4. Borrow from your credit cards. Banks won’t like this bit of advice especially if your default. Still, credit cards may offer the road to staring a new business that you seek. Know that cash advance rates can be terribly high, 24 percent or more. The advantage here is that you can usually borrow the money without question and pour those funds into your business. Use this option if your certain that you will get near instant returns. If not, you could be in for a heap of financial trouble in short order.

Financial Matters

There may be yet another way for you to get money to launch your business. The Small Business Administration Microloan program covers select businesses, offering short term loans to not-for-profit childcare centers for instance. Other business models may also qualify; contact your local microloan intermediary for more information.

References

Bankrate: 4 Good Reasons to Take Out a 401(k) Loan — http://www.bankrate.com/finance/retirement/4-reasons-to-take-out-a-401k-loan-1.aspx

Entrepreneur: Financing Your Business with Home Equity — http://www.entrepreneur.com/article/184692

Small Business Administration: Microloan Program — http://www.sba.gov/content/microloan-program

See AlsoCommercial Financing Options for Small Businesses

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About the Author

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".

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