How to Raise Start-Up Capital

Can you start a business with little or no money? According to these successful entrepreneurs, you can.

Starting a business is tough and, for many entrepreneurs, one of the most daunting challenges is raising start-up capital. Gone are the days of pitching investors with hot new technology ideas. Today, entrepreneurs are much more likely to dive into their own pockets and hunker down for a battle to start up and stay alive. But if you don't have the cash in your wallet, what do you do? Luckily, there are still options for funding new companies, but finding and securing the cash will take careful research, good negotiating skills, and, above all, an unflagging commitment to launching your new business.

Start your capital search with a good business plan that shows investors and lenders your company's potential. Follow that up with a thorough knowledge of the resources available and a determination to make your business a reality, and you should be on your way to uncovering a source that fits your new business's cash needs.

Survey the Field

Where Do You Go?: Small-business expert and former Inc writer Tom Ehrenfeld discusses the various financing options entrepreneurs have in this excerpt from his book, The Startup Garden.
20 Tips for Finding Money Now: Small-business finance expert and former Inc finance editor Jill Andresky Fraser explores 20 ways for financing a business in this 1999 article. Some represent ways to finance new start-ups, while others help established businesses find working capital.
How to Finance Anything: Though funding isn't as easy to secure as Jill Andresky Fraser mentions in this 1998 Inc classic, the article does offer an overview of some resources that entrepreneurs frequently pursue, including private-equity investors, banks, venture capitalists, and non-banks. Don't miss the common pitfalls to avoid when seeking capital.

Bootstrap Your New Business

Start with Nothing: Greg Gianforte thinks he knows the single best way to launch a business. Here's his secret: "Bootstrap it."
The Pita Principle: Just how low can you go when bootstrapping your start-up? The founders of Stacy's Pita Chip Co. can tell you.
Great Companies Started for $1,000 or Less: Profiles of seven entrepreneurs who transformed start-up capital of $1,000 or less into companies with revenues of $1 million or more.

Inspiration from the Inc 500

Starting businesses with little or close to no money at all seems to be the norm for many recent Inc. 500 companies.

The Numbers Game: According to the class of 2002, you don't need a whole lot of money to start a business. Many of the 2002 CEOs launched their businesses with $10,000 or less. And more than a third of those bootstrappers started with less than $1,000.
A Little Goes a Long Way: When it comes to the 2002 Inc 500, start-up capital is not the leading predictor of success.
Start-up Springboards: No cash? No customers? That didn't stop the founders of these 2000 Inc 500 winners.

Tapping Family and Friends

Tapping personal ties to raise cash for a company that's either too new or too small to get financing elsewhere is an age-old formula that still makes sense. But here's one risk too big to ignore in today's highly competitive capital marketplace: if you don't follow professional standards in structuring and documenting "F&F" loans or equity arrangements, your sloppiness will likely come back to haunt you.

That's because if and when your company grows to the point at which it can credibly approach banks or professional investors for funds, their lawyers will examine your corporate capitalization structure with a fine-tooth comb.

(Excerpted from "20 Tips for Finding Money Now," Inc. magazine, March 1999)

Blood Money: Hitting up family and friends is the most common way to finance a start-up. It's also the riskiest.
Borrowing: Avoiding Problems with Family and Friends: When entrepreneurs borrow start-up capital from family members or friends, it's best to prepare for the worst -- before it happens.
Borrowing Money for Your Business: Whether you borrow money from a bank or someone you know, you should sign a promissory note--a legally binding contract in which you promise to repay the money.
Three Steps to Borrowing from Family or Friends: Keeping the relationship professional is the key to successful borrowing from close acquaintances.

Try Bank Borrowing

Bank financing isn't impossible. Use this advice to increase your chances of securing a bank loan.