subject: Where Do You Get Startup Capital? [print this page] Even though startup money is absolutely necessary for a new business, it is important that you dont bind up your new business before it even starts by getting the wrong kind of capital. The majority of startup capital is obtained through personal savings, a second mortgage on your home, family and friends.
A recent study, which sampled more than 4,000 small businesses, found that 80 - 90% of most capital is made up in equal parts of owner equity and bank/financed debt. In this tough economy where so many people have been laid off, the ability to start your own business without a large amount of startup capital is very important. Financing or raising enough money is often the biggest challenge in making your new company a reality.
Probably the most overlooked aspect of getting startup money is not paying any attention to the importance of personal credit scores. When a business first starts up, most financial institutions require a personal guarantee and if your FICO scores are poor, you will be unlikely to obtain the money that you need.
Start Up Decisions
Usually money is needed to begin any business. Before going after startup capital make sure you know how much money you need, and then how you will apply the money you obtain. Small business startup costs can do more than just discourage an entrepreneur from starting a business. Entrepreneurs can solve this problem, but they must follow certain steps in order to obtain any money that is considered business funding versus personal funding. While banks will give loans to help raise small business startup money, their restrictions are often so tight that inexperienced entrepreneurs cant get a business loan, business line of credit, or startup capital. Sometimes, entrepreneurs seek out investment partners to help them with their small business startup costs.
Personal versus Business Credit
Personal credit and business credit are very similar, but they are not the same. Personal credit is reported to the credit bureaus as FICO scores, but business credit is not reported on an individuals credit report under their social security number. Business credit is reported under the Employer Identification Number (EIN), better known as the tax ID #. The creditworthiness of a business is critical to a company if they want to continue to have access to funding for their day to day operations such as payroll, inventory restocking, etc.
Conclusion
That is why it is very important to set up your business correctly with the State in which you are planning to do business. There are several other legal considerations every entrepreneur must face when starting a new business, and raising startup capital is one that can be full of frustration if the owner does not understand how to choose their legal entity structure or how to build their credit profile.
There is a new eBook on the market that explains the basics of setting up a business, including information about the tax advantages and disadvantages, as well as the basics of building a credit profile so that your company can start getting business lines of credit, business loans, and business credit cards. Visit the website today to learn about the eBook Basics of Business Credit. A Free Credit Restoration Guide is being given as a bonus with every purchase. Click here to learn more.
