Funding Your Startup: How to Finance Your New LLC
You have an amazing idea to start a new business. You know this idea will work and you cannot wait to get started. You are anxious to move forward and you are wondering one major thing: How am I going to pay for this? There are several ways entrepreneurs go about funding their new businesses. We will outline some of the options below.
Personal funds:
Using your own savings or retirement accounts is the most common initial funding source for an LLC. This method is the easiest to obtain as you already have the funds available. Another option may be to bring on partners who can also provide personal funds to the venture. Bringing in partners may help with funding but may have other drawbacks to consider as well.
Venture capital:
If the idea of having an equal partner does not interest you, another way to secure funding is to seek venture capitalists. Venture capitalists will be looking to you to see a solid business plan with details on their return on capital and well as growth potential. Think of the show Shark Tank to define venture capitalists.
Small business loans:
You can reach out to your local bank to inquire about obtaining a small business loan. Keep in mind that the bank will also be looking for financial data regarding your cash flow, payables, and other potential liabilities. They may also require you to personally guarantee the loans as the new business will typically not have a credit profile. Business lines of credit may fall under this same category, but instead of having a single influx of capital, you may have multiple draws over time.
SBA loans:
Backed by the Small Business Administration, these loans often offer favorable interest rates and can be a good option for startups. There are several programs and choices available, and information can be easily gathered by reaching out to your local Small Business Administration office. You can also find information online at www.sba.gov.
Crowdfunding:
Raise capital from a large pool of individuals through online platforms like Kickstarter or GoFundMe. Each platform has its own unique features.
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Kickstarter: a platform that focuses on creative projects like art, music, film, etc. Funding is all or nothing and fees are fairly reasonable.
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GoFundMe: a crowdfunding platform designed for individuals and personal causes. There isn’t an “all-or-nothing” requirement, and the fees are quite reasonable. Since this platform focuses on personal projects, it may not be the best choice for business funding.
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Indiegogo: a unique platform that accommodates many diverse campaigns. There is no “all-or-nothing” requirement, but fees can be higher.
Crowdfunding an LLC can also help generate interest in your product or idea and provide early feedback from potential clients.
There are other methods available to generate capital such as grant programs, angel investing, personal credit and funding from family. You may also invest individual property, tools, equipment and other assets to start your new enterprise. You will want to weigh the pros and cons of each method of generating capital and decide what is best for your new venture. It is a great idea to research grant options and SBA loan requirements as part of your analysis and planning phase for starting your new business.
We at Harvard Business Services, Inc. look forward to hearing from you and assisting in the registration of your new LLC. We have been helping clients create their dreams since 1981. Visit our webpage at www.delawareinc.com or call us at 1-800-345-2677 to begin the process.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.