The answer to this question will vary depending on whether you are starting a business or are already in business and on the following:
- the amount of money needed
- length of time in business
- geographic location
- personal credit rating and financial net worth
- business credit rating, if an existing business
- management ability
- ability to provide collateral and repay the debt
- viability of the business idea
- type of financing needed (debt or equity)
Committing your own funds is often the first financing step for a start-up. It is certainly the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business.
Next, approach family and friends – those who know you best and want to see you succeed. Show them the benefits available by investing in your business. Let them have an equity stake in your business, become a partner, or if they prefer to lend you the money, write up a contract and pay back the loan with interest, as if you were working with a bank.
The next obvious source is a bank, particularly for an established business. Developing a relationship with a bank and a banker before approaching them for a loan is key. They will help you determine which type of loan is best for you.
Other loan sources include commercial finance companies, venture capital firms (only available to rapidly growing tech companies), angel financing (private investors of a few thousand dollars up to $5 million who are interested in rapidly growing companies), local development companies, and life insurance companies. For information about financing options, see opens in a new windowIdaho Small Business Solutions website.
Trade credit, selling stock, seller financing, use of supplier/vendor financing (have a supplier extend 120 day terms instead of the usual thirty while you extend only 30-day terms to your customer), end-user funding (having the ultimate customer finance the research and development of the product), and equipment leasing offer alternatives to borrowing. Leasing, for example, can be an advantage because it does not tie up your cash.
Consider which options are right for you and then work with your banker or an Idaho SBDC consultant to determine the option that is best for you.