In most budding small business owners’ mind, the important thing needed to start a business is money. We think that this is really a misconception. Because of this misconception many good, passionate entrepreneurs are discouraged because they don’t have enough cash to start a business. In fact, we are working with one such individual who is passionate about music and wants to start a music themed coffee shop; but is struggling to find money to do it.
The good news is you can start a business with little money. There are ways by which you can get started as long as you have passion to put everything you have in it. The key is to start small and not go for a big bang as well as have a well-thought plan to achieve your grand vision even while taking baby steps.
Below we have highlighted some of the ways by which you can get started even when you don’t have enough cash.
- Borrow from banks and private investors. We will admit this is the first step that comes to mind for many people. However, it is one of most difficult route to go through to borrow money. Not only will you have to put up considerable collateral in “hard assets”; but you will pay a high price in terms of interest and/or equity stake. Our advice is to look at the alternative sources and ideas described below before pursuing this option.
- Seek help from friends and families. A better source of funding in the initial stage is your friends and families. This group of people knows you well and can make better judgment about your potential. They will also work hard to help you succeed by not only providing cash; but also helping with other tasks such as marketing and others. You can structure this borrowing in terms of debt or equity.
- Look for SBA guaranteed loan. When banks are reluctant to lend you money because of perceived risks; you can look into talking to Small Business Administration for loan guarantee. SBA web site has a wealth of information on the programs they offer to small businesses. You can start with their FAQ on SBA loan and SBA grant.
- Borrow from 401K savings. Borrowing from your retirement savings is a delicate and potentially risky alternative. On one hand you can get satisfaction that any interest you will pay on 401K loan will be paid back to your retirement plan; but on the other you need to understand that the savings can be completely wiped out if you business does not succeed. That’s why our advice is to use this as a last resort.
- Partner with someone who can provide cash. This is one of most overlooked option by many. As we mentioned in this post there are people who are looking to put their cash to good use but do not have time to run the business. If you can convince them that you are passionate about starting and running business and will provide them with appropriate return on their investment they will be more than happy to work with you. Before you jump into this make sure you understand the pros and cons of partnership and the steps you need to take to make it successful.
Whatever path you take to get funding we cannot emphasize to keep your start-up cost minimal. We have explored many of the techniques in an earlier post.
Do we have any small business owners in the audience who had success in starting business with little money? We would love to hear from you.
