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10 Ways to Finance a Solo Business
by Terri Lonier
Looking for a way to get your new business up and running?
Surveys show that many entrepreneurs start their businesses
with $5,000 or less. Use the following ideas for safe and
sane ways to start your business and cover living expenses
along the way. This way, you can make a smooth transition
from former to new income sources.
1. Moonlighting
Ease into a solo venture by conducting business during off-time
hours from your job. This lets you "try on" the
business and see if it's fun and profitable. Moonlighting
also lets you develop skills without as much financial pressure.
2. Part-time
As a bigger step, consider cutting back your full-time job
to part-time. This gives you freedom while covering basic
living expenses. Make sure you consider alternate coverage
for any insurance or other benefits you would lose.
3. Jump-start
Become an independent contractor and convert your current
employer into a client. The company saves money on benefits,
and you get an automatic base for your new business. Be careful
about plans to entice clients or customers away from your
employer. This can cause ill-will or even legal problems.
4. Two-fer, or piggyback
Let the salary of an employed spouse or partner cover living
expenses. Or move in with family or roommates to cut costs.
Keep in mind, however, that this can put stress on a relationship.
Setting a cut-off date can help lessen tension and set realistic
boundaries.
5. Squirrel approach
Create a stockpile of money while working at another job,
the way a squirrel saves acorns. Using this conservative approach
gives you freedom and plentiful resources when you're ready
to launch.
6. Found money
If you receive an unexpected windfall -- lottery, inheritance,
stock, etc. -- spend it wisely. These are uncommon and unpredictable,
but it can be just the ticket to get you started.
7. Money pool
Instead of a bank loan, borrow smaller sums from several family
members, friends, or colleagues. The lenders have no legal
ownership in the business, but can act as advisors and cheerleaders
for your venture. Since all investors will be paid interest,
bookkeeping can be complex -- but your financial goal has
been realized.
8. Credit
While expensive and psychologically troubling, credit cards
can be a way to finance a business. Use them carefully. A
less expensive option is to get a credit line extension to
your bank checking account.
9. Bank loan
This is the financing option many people think of first, but
it can be the most difficult to acquire for solo business
newcomers with little credit history. If you apply, you'll
face large amounts of paperwork and scrutiny. If you own a
home, consider a home equity loan, as they are more flexible
and easier to obtain than business loans.
10. Venture capitalists
If you have a sizzling business idea that needs heavy capitalization,
consider this route. In exchange for their investment, venture
capitalists acquire partial ownership in the business, generally
through stock. This financing method is complex, and you should
seek professional advice before pursuing this path.
Many business owners use combinations of these financing methods.
Don't be afraid to add a creative interpretation to your own
funding needs. Prospecting for financial support will also
clarify your business ideas -- to yourself and others -- which
will make your company stronger in the long run.
Copyright 1997-2006 Terri Lonier. All
rights reserved.
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