Start-Up Business Financing – Look to Crowd Funding

Last Updated: Jul 19, 2012
Need money to start a business? Crowd funding could be just what you need to get your start-up off the ground.

Crowd fundingOver the last few years we have heard ad nauseum about small business struggles with ing capital for growth. But, even harder hit then your typical Main Street business have been those companies that have yet to open their ors – Start-Up Businesses.

Start-ups have always struggled at getting capital before launching their businesses.They have no revenue, no real prospects, no assets and no brand name. In fact all they really have is a hope and a prayer. Thus, no lender or inor in their right mind would touch a start-up business – and they usually n’t.

But, year in and year out, some 600,000+ new businesses are started each year; according to the Small Business Administration. These businesses have to get funding somewhere. The question becomes, where?

Each business is different and as such each may find a different or unique way to scrape together the capital needed to launch their company. Some new businesses have to either cash out all their personal re like home equity, stocks and bonds, deplete savings accounts while some may find inors in their local area or tap their friends and family.

Whatever they , the bottom line remains the same; small, new start-up businesses can’t get outside capital from traditional business loan re like banks or other financial institutions. But, over the last decade or so, there have been some really ingenious and innovative entrepreneurs stepping up to fill this lending gap.

By now you have heard of peer-to-peer lending where members of a network borrow and lend to each other – cutting out the banks or professional inors. And, recently there has been a renewed push for a similar form of start-up business financing, termed Crowd Funding.

With the huge popularity of social networking and the reach that this direct interaction can bring to one person’s idea, crowd funding is getting a new foothold in the business world – really picking up since 2008.

Now, crowd funding is not going to provide your new business with millions of llars in capital like a venture capital deal would or will it provide you with hundreds of thousands of llars like a bank loan would. But, it could (should if used right) provide your start-up business with enough initial capital to get launched and ben to generate customers and revenue – because, once your new business es start to show some promise or bens to generate actual business, other financing options will open up to it.

Think about the typical start-up business – a business that is only an idea at this point.What eenses will it really face before opening its ors? Most new businesses have the following start-up costs:

That s about $3,500. Moreover, for those businesses that n’t need inventory or a building to operate out of in the benning (online businesses), their start-up costs are much lower.

Now, many new business owners end up putting this amount on their credit ds then open their ors and start to build their company. But, ven our recent recession and slow recovery, you just not have the available balance on your credit ds to this.

In steps to crowd funding: Use your social network – those people you know and those you n’t but are friends, followers or fans with – to raise that needed start-up cash.

According to VC Deal Lawyer, based on several reputable publications like the Wall Street Journal and the Economist, crowd funders can typically raise between $2,000 and $10,000.

While this amount will not let your business push a national marketing campaign with a Super Bowl ad this coming February, it should be enough to cover those initial start-up costs – allowing your new business to open its ors and ben to get after paying customers.

Further, and as another solid benefit, most crowd funders are not ving away large portions of their company like they with local or angel inors or even with stratec partners like CPAs and attorneys.

In fact, very few crowd funding businesses are ving away equity. Why? Because it runs up against the Securities and Exchange Commission’s regarding equity inment in private companies (think Reg D).

Instead, these companies are providing their nors or contributors some type of perk or reward – something tied to the business after it gets up and running – like a coupon or sample or even a personal phone call from the owner.

Just image that you get a personal call from the next Mark Cuban before he becomes a household name – pretty neat!

So, while crowd funding won’t provide your start-up with millions of llars – the type of money that our main stream media companies likes to profile – it should at least cover your very basic start-up costs – getting you out of that start-up mode and into that small, growing business stage.

Further, ven our current economic environment, who could really ask for more? After all, if you n’t have to really ve away anything for it – it is just free money for your new, start-up business.