Securing Capital: Overcoming Your Biggest Startup Hurdle

 Posted on May 05, 2023 in DuPage County Business Law Attorney

A startup often begins as a meager idea. That idea grows and develops, becoming more and more detailed over time. Eventually, what started out as a small, bare-bones idea can grow into a fully-fledged business plan.

If you intend to launch a startup, you are probably familiar with the exciting process of fleshing out an idea and developing it into a business.

Unfortunately, many entrepreneurs run into the same issue: Starting a business can be extremely expensive. In this blog, we will discuss some of the most common ways that entrepreneurs find startup capital and the advantages and disadvantages of various funding options.

Angel Investors

Some lucky entrepreneurs are able to secure funding from an individual who believes in their vision. These so-called “angel investors” are often individuals with enough financial resources that they can safely afford to invest in a brand-new business.  In most cases, funding from an angel investor is not a loan. Instead, the investor is given a certain amount of equity in the company.

Securing funding through an angel investor can be a great way to acquire funding without the risks associated with a loan. However, giving away too much of your company’s equity reduces your control over the company's future.

Small Business Loans

A small business loan can be used to secure the capital that you need to start building the business of your dreams. Loans through the Small Business Administration usually have interest rate caps that can help keep the loan's reasonably affordable and a guarantee that reduces your risk. However, qualifying for an SBA loan is not easy, and you will still be expected to make a down payment and eventually pay the loan back. Furthermore, you can be held personally liable if the business defaults.

Business Credit Cards

Business credit cards provide easy access to funds for startup costs and day-to-day expenses. However, after the introductory APR, interest rates on business credit cards are often much higher than interest rates on business loans.

Personal Loans

Entrepreneurs who cannot qualify for a business loan may decide to pursue a personal loan instead. However, you will need good credit to qualify for a personal loan and not all loan providers allow borrowers to use the loan for a business startup.

Crowdfunding

Crowdfunding is a relatively new way to raise funds for a business idea or product. Websites like GoFundMe and Kickstarter allow people to donate money towards a startup without the expectation of being paid back. However, crowdfunding websites charge a fee and there is significant competition on these types of websites.

Venture Capital

Working with a venture capitalist can provide access to significant capital. However, venture capitalists are looking to maximize return ion investment, so you must adequately demonstrate why investing in your company will be a profitable choice. Furthermore, investors typically want equity in the company, meaning you will give up a certain amount of control over your business.

Contact our Wheaton Startup Attorneys

At Stock, Carlson & Asso. LLC, our DuPage County business law attorneys provide dependable legal support and guidance during all phases of the business formation process. We can help you understand your options and devise a plan to give you the best chances of success. Call 630-665-2500 for a confidential consultation.

Source:

https://www.sba.gov/funding-programs/loans