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How to Fund a Small Business Startup

There are two ways to fund a business: debt and equity.

Debt financing is borrowing money. It can be credit cards, friends and family, your retirement account or a bank, savings and loan, or credit union. Sometimes you can borrow against the equity in your home. Sometimes you can qualify for a loan guaranteed by the Small Business Administration. With a loan, you retain full ownership of your startup; however, you’ll start repaying the loan — plus interest — immediately.

The other type of funding is to find an investor who gives you money for a share of the business ownership. This is called equity financing, and may also come in the form of an angel investor or venture capitalist. Typically, these types of investors want both an ownership percentage and management control as a director or managers of the company.

For any type of funding, you will want to have a business plan. The business plan is a roadmap for how to structure, run, and grow your new business. It’s a way to think through the structure and operation of your business. The plan generally includes a company description, market analysis, company organization, and management, description of the goods or services, marketing plans, and financial projections.

For more information on the differences between debt and equity funding, click here.


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