| You have the idea and you have the motivation, but | | | | can't screw up: don't underestimate your costs, don't |
| do you have the money? The credit environment | | | | miss your deadlines, don't give your customer any |
| right now stinks and you aren't thrilled with the idea | | | | reason to suspect that your business isn't completely |
| of applying for business loans. Fortunately, you have | | | | stable. |
| other options for raising seed capital. If you are | | | | Dabble in alternative finance |
| creative-minded and determined, you can locate the | | | | Websites like can also be a source of business |
| money you need to start your businesswithout | | | | funding. LendingClub and its competitors facilitate |
| asking a business bank to help. | | | | peer-to-peer lending marketplaces. Through the site, |
| Tap angel investors | | | | regular folks who have money can make loans to |
| Angel investors are wealthy individuals who deploy | | | | regular folks who need money. You would visit the |
| their money in business start-ups. They don't do it | | | | site, set up a profile and define the parameters of |
| because they're nice people; they do it to make | | | | your loan. Peer lenders review the profiles and invest |
| money. A successful small business start-up can | | | | small dollar amounts in the opportunities they like. |
| provide an investment return that's well in excess of | | | | When your loan funds, the money will come from a |
| what exchange-traded stocks or bonds might | | | | group of individuals, each of whom pledged a portion |
| produce. | | | | of your loan request. |
| Angel investors do not hand over their money | | | | Credit requirements vary for peer loans. Expect peer |
| casually. Expect to provide potential angel investors | | | | lenders to evaluate your credit qualifications and your |
| with all the documentation you'd give the bank when | | | | business idea before committing to your loan request. |
| applying for a loan, such as your business plan, | | | | Use existing credit lines |
| financial projections, market research, product data, | | | | No doubt you've already considered using your |
| etc. | | | | personal credit cards to generate seed capital. This |
| You will have to share decision-making authority with | | | | may be the easiest and fastest way to generate |
| your angel investor. She may ask for a board | | | | seed funding, but it can get expensive. To keep a lid |
| position, for example, and will place restrictions and | | | | on costs, try to use the card more for purchases |
| stipulations on future corporate actions. Retain an | | | | rather than cash advances. Call your card companies |
| experienced attorney and accountant to assist in | | | | and ask about rate promotions. Watch for mail from |
| negotiating and documenting the arrangement. | | | | your card issuers; sometimes they'll send out checks |
| Partner up | | | | that you can use to draw money against your |
| A second alternative is to team up with friends who | | | | account at a lower rate. |
| share your business interests. If you can rally a group | | | | A loan against your permanent life insurance policy |
| of entrepreneurs, you can ask each individual to be | | | | could be another attractive option. You will be limited |
| responsible for raising a certain amount of funds. In | | | | to borrowing only up to your policy's cash value. The |
| return, each will get a slice of ownership in the | | | | good part is that your insurance company isn't going |
| company. | | | | to press you for immediate repaymentmainly |
| Partnerships among friends can get messy when the | | | | because the loan accrues more interest when you |
| arrangement is handled too casually. Document the | | | | take longer to repay. Just have a plan to repay it |
| terms of the arrangement before money changes | | | | eventually, because otherwise you could run into tax |
| hands. Define the management and financial | | | | problems down the road. |
| responsibilities of each partner. Clarify who has the | | | | Ask your elders, the right way |
| final say on corporate decisions, and decide what to | | | | Finally, you can ask your wealthy, older relatives for |
| do if someone wants to cut ties with the company. | | | | the seed money. The trick is to present it as an |
| Lock in one big contract | | | | opportunity, not a loan request. Pitch your Great |
| When you don't want to share your management | | | | Aunt Selda on the idea of investing in the family and |
| role with investors, you can find a customer to pay | | | | earning a nice return in the process. Do your |
| your start-up costs. Many a small business has begun | | | | homework on loan rates and offer Aunt Selda a |
| with just one contract. To make this work, you'll | | | | competitive rate on the borrowed funds. Draw up an |
| have to be meticulous about your financial and | | | | agreement that defines the loan amount, interest |
| operational planning. Your customer doesn't want to | | | | rate and repayment terms. Going forward, do what's |
| know that she's financing your start-up; she only | | | | necessary to stick to your agreement. At her age, |
| wants to know that she's giving you a deposit for | | | | Selda can't afford to lose a bunch of money on a |
| the delivery of goods or services. This means you | | | | family loan gone bad. |