How Startup Capital Works

When you start a business you will need money to get it off the ground. This money
is called
startup capital
and you need it to rent or purchase space for the business,
furniture, equipment, supplies, fees and others. There are several places where
you can get the startup capital. The startup capital or the working capital is the
funding that will help you pay for equipment, rent, supplies, etc, for the first
year or so of operation.

You are going to need some funds to keep you going while your business puts itself
on its feet. This is why you will need to allocate enough startup capital for the
true expenses associated with running your business for the first year of operation.
One of the main reasons many new businesses fall is because they do not get enough
startup capital, that is to save some money for unexpected events, besides financial
needs.

There are two types of startup capital. One is the debt capital, which consists
of a loan that must be paid back over a set period of time with interest and other
fees. The other startup capital is equity capital, which is funding provided by
people to firms who want to own a part of your company and reap some of the rewards
when your large and successful company goes public or is acquired by another larger
and even more successful company. You also have the choice to use personal funds.
Over 50% of small business start-ups are financed with personal funds. You can resort
to personal funds if your business does not require producing a product, hiring
employees or renting an office.

To deciding to open a business you should also consider getting startup capital
from friends and family. In this case make sure you present the business to them
just like you would pitch it to a
venture capitalist
and let them decide whether
they want to take the risk or not. Overall, getting startup capital from your friends
and family may not be your best choice simply because of the strain it may put on
relationships. However, it does work for many people and may even strengthen your
relationship if your business takes off and is successful.

You can also get startup capital from banks, although banks are skeptical about
lending money to start-ups and prefer to see a couple of years of profitability
before they dole out cash. Every bank and every banker will have a slightly different
idea of what to look for when deciding whether or not to lend you some startup capital.
They will all look at your financial projections and credit history, but their perception
of your character is also a very critical factor. It may take many visits to many
banks and many different bankers to actually find one that will take a chance on
your business and give you the startup capital.

You can also go for startup capital to venture capitalists and angels. With this
type of startup capital, you can sometimes obtain large quantities of money, and
this money can help businesses with big start-up expenses or businesses that want
to grow very quickly. It is pretty difficult to attract angels and VCs but it is
worth it.

Source


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