The answer to this question will vary depending on the:

• amount of money a person needs

• length of time in business

• geographic location

• personal credit rating and financial net worth

• management ability

• ability to provide collateral and repay the debt

• viability of the business idea

• kind of financing (debt or equity)

 

Committing your own funds is often the first financing step. It is certainly the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business.

 

Next, approach family and friends - those who know you best and want to see you succeed. Show them the opportunity of investing in your business. Let them have an equity stake in your business, become a partner, or if they prefer to lend you the money, write up a contract and pay back the loan as if you were working with a bank.

 

The next obvious source is a bank. Developing a relationship with a bank and a banker is key. They will help you determine which type of loan is best for you. Remember that a home equity loan is still the cheapest and fastest loan to obtain.

 

Other loan sources include commercial finance companies, venture capital firms, angel financing (private investors of $1,000 up to $5 million), local development companies, and life insurance companies.

 

Trade credit, selling stock, seller financing, use of supplier/vendor financing (have a supplier extend 120 day terms instead of the usual thirty while you extend only 30-day terms to your customer), end-user funding (having the ultimate customer finance the research and development of the product), and equipment leasing offer alternatives to borrowing. Leasing, for example, can be an advantage because it does not tie up your cash.

 

Consider which options are right for you and then work with your banker or a NJ SBDC business consultant to determine the direction that is best for you.

 

Return to FAQ.