One common reason many new businesses fail within the first two years is undercapitalization. That means, simply, that the businesses did not have sufficient cash or other liquid assets to survive through the early stages of growth.
If you are serious about starting your own business, chances are you already have an idea how much money you will need to support your business for the first two years. The part you haven’t quite figured out may be how you will come up with all of the money you need.
One of the most common questions we hear from beginning entrepreneurs is, “Where can I get money to start my business?”
The answer is multifaceted, and of course, depends on the type of financing you are in the market for. Your own savings and low-interest loans from family members are most likely the cheapest source of financing. But there are many other options to help fill the gap.
Secured loans, such as a home equity loan, may be your first choice because of price and accessibility, but think whether you want to put your home at risk in the event your business fails. Unsecured loans are more expensive due to the higher risk of loss to the lender, but may be available depending on your personal credit history. Credit cards may also be an option for some new business owners.
An alternative to borrowing money is finding investors who are willing to invest capital into your business in exchange for part ownership. This type of financing is known as venture capital, and is a type of equity financing.
Venture capitalists are investors who are willing to take on a higher risk of loss in exchange for a higher potential return on investment. Venture capital is not a loan but an investment in your company. The investors may be involved to some extent in overseeing the management of your business, or at a minimum monitoring the direction and growth of the business.
Venture capital may be the right alternative to traditional debt for your business, but as with any financing option, you will be required to sign a contract with your investors. Be certain you understand all parts of any agreement before you sign.
For help navigating your business borrowing and investment options, and the contractual agreements that go with them, call a lawyer experienced in Pennsylvania business law. The attorneys at the Scolieri Law Group, P.C. can help draft or review contracts related to your business, and in all of the steps along the way in building your business. Contact us today at (412)765-0546 or firstname.lastname@example.org.