Funding Opportunities for Entrepreneurs

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  • 0:02 Funding for New…
  • 0:25 Keeping it Close to Home
  • 0:59 Asking Uncle Sam for Help
  • 1:27 Borrowing From the Pros
  • 2:38 Thinking Outside the Box
  • 3:45 Lesson Summary
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Lesson Transcript
Instructor: Susan Fenner

Susan has an MBA in Management from the University of North Alabama. She teaches online and campus-based Business courses.

Do you dream of owning your own business? You know that it takes money to get started, but what can you do to raise the cash? This lesson discusses a variety of funding options that are available for entrepreneurs.

Funding for New Business Ventures

Jamie Smart is an assistant in a floral shop. He loves working with flowers and the customers and dreams of opening his own shop one day. Jamie likes to imagine the colorful displays he would create for his customers. He believes he has the imagination and the drive to be an entrepreneur, but he doesn't know where to begin to raise the money for opening his own business. Let's take a look at some of his options.

Keeping It Close to Home

Before he goes looking toward outside sources, Jamie needs to evaluate if he can raise the funds between his own resources and those offered by people close to him.

One option for entrepreneurs like Jamie is bootstrapping, or funding a new business from one's own savings. The advantages are that it saves time and energy trying to prove your worth to potential investors, and it allows you to retain control of your business.

Another option is to borrow from family or friends. People who already know you might be willing to loan you the funds you need to set up a new business. Here, too, you can save time and energy by working with people who already trust you.

Asking Uncle Sam for Help

The United States government offers help to entrepreneurs in the form of grants or low interest loans through the Small Business Administration (SBA). The SBA website describes the types of grants and loans available and the qualifications for each. It even has step-by-step guidance to walk entrepreneurs through the application process and a link to connect them with lenders. Jamie would be wise to follow the lead of millions of entrepreneurs and tap into government resources available to him just for the asking.

Borrowing From the Pros

Another option Jamie may want to consider is a loan or line of credit from a bank or credit union. This option may require him to put up personal collateral, such as his home, to secure the loan, but he'll still be able to maintain a lot of control over his business. After all, isn't the chance to be your own boss one of the biggest reasons people want to become an entrepreneur in the first place?

Angel investors and venture capitalists are additional funding sources for entrepreneurs like Jamie. Angel investors are wealthy individuals or groups who provide start-up money for entrepreneurs in exchange for some form of equity ownership in the business. Angel investors differ from venture capitalists in that they are more likely to fund small businesses, like Jamie's.

Venture capitalists are also wealthy individuals or groups who provide money to start or expand a business, but venture capitalists will generally only fund businesses with very high growth potential. You've undoubtedly heard of some of the well-known businesses that were able to grow because of venture funding. FedEx, Apple, and Microsoft come to mind, just to name a few! Venture capitalists frequently bargain for an active role in controlling the business. Would you be willing to give up control in exchange for financial backing?

Thinking Outside the Box

One creative way Jamie might fund his business is by forming a partnership with an existing business. Established businesses may serve as a start-up incubator, providing resources, such as money, technology, office space, or marketing, in exchange for equity ownership in the business. Or an existing company might have a strategic interest in helping a small business, like Jamie's, get started if it can make use of a business' service or product in the future.

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