The American dream is often interpreted as being able to live life on your own terms, the pursuit of personal happiness, and the ability to become rich. The ability to become rich in America is achieved by creating ownership through starting a business, investing in stocks, bonds, or real estate. The American economy is based on capitalism, which is an economic system where by goods and services are exchanged on a for-profit basis. The concept of capitalism, if implemented correctly, can make any individual who owns a business that operates on a for-profit basis extremely wealthy. However, there are thousands of individuals who attempt to open a small business to achieve wealth. Many small businesses fail within the first five years of operation. When starting a small business, an individual must be able to obtain suitable startup capital. There are a number of ways to obtain startup capital, which includes loans, family and friends, credit cards, and angel investors.
The most common and widely used method to obtain capital for a small business is to obtain some type of loan. The small business administration (SBA) is a great place to apply for a startup business loan. The application requirements for a SBA loan are a business plan, loan request amount, collateral, personal financial or business financial statements. A personal loan from the bank is another type of loan obtained for startup capital. The personal loan is usually considered an unsecured loan, therefore the bank may limit the loan to a maximum of $5000.00. The individual applying for the loan must have a good credit rating, show proof of income, and tax statements for at least two years. When applying for a personal loan, do not state you are using the money for the purposes other than personal use.
Family and friends are a great resource to obtain startup capital for your business. This method is often taboo in terms of mixing family and business. If the terms are structured right, the family and friends’ method can be a win-win solution for both parties. Creative financing can play a major role in which the family member loaning the capital may give you a great payment schedule to repay the loan. This payment schedule may allow a person to borrow $25,000.00 and make small payments at the end of each year for a time period of ten years.
Credit cards are certainly a risky way to start a small business, however many people have been successful. Credit cards are risky because credit card companies allow you to get a cash advance. The payments must be on time to avoid late fees and high interest rates being charged. If the business fails to make suitable capital to operate then not only does the business fail but also the owner is now responsible to pay off the debt. This method is not recommended to start a business. A small business loan or bank loan is less risky.
New business owners commonly seek after angel investors or equity investors. The angel investor is an individual with a large excess of capital that is looking to invest in businesses and ideas that will make them additional money. The angel investor will invest a certain amount of money for an equity share in your business. The angel investor may also have specialized expertise in your business in which he/she may offer more startup capital for a 50% partnership with the business owner. A rule of thumb when dealing with angel investors is to know how much of the business you are willing to give up before negotiating with them. Lastly, confidence is key. Know your business and your target market.
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