Seven Alternative Sources of capital for starting a business

Borrowing from banks is the nightmare of every small business owner. One is turned down for bank loans for a variety of reasons, including lack of assets, collateral and business experience. Do not despair, though. There are several common types of alternative sources of capital for the creation of a company available to young companies.

Savings and investments

The first source you should consider is your own savings and investments. A disadvantage, however, self-funding is that if things did not go how you want it is your money going down with the ship.

Angel investors

Business angels are wealthy individuals who provide capital for business start-ups, usually in exchange for ownership equity. These individuals are looking for a return rate higher than would be given by more traditional investments (typically 25% or more).
Business angels are an excellent source of funding for early stage and high growth start-ups. They are often willing to tread where there is too much risk for banks and not enough profit potential for venture capitalists. And because angel investors are often retired entrepreneurs and managers, can also provide valuable management advice and important contacts.

Peer to Peer Lending

Peer-to-peer lending is a means by which borrowers and lenders may transact business without the traditional intermediaries such as banks. It may also be known as social Lending, ordinary people borrow money. The process may include other intermediaries who package and resell loans - examples are Prosper.com and Zopa, but the loans are ultimately sold to individuals or pools of individuals. Prosper.com, which is only available in the U.S., offers business loans for small businesses.

An enabling technology for peer-to-peer lending has been the Internet, which connects borrowers with banks, for example through an auction like process in which the lender willing to provide the lowest interest rate "wins" the loan borrower. (Wikipedia.com)

Money Pool

Instead of a bank loan, borrow small sums from several family members, friends or colleagues. Lenders have no ownership in the industry, but can also act as consultants and cheerleaders for your business. Remember though that does not cause tension in a family like lending money that is never returned.

Credit Cards

Many entrepreneurs use their credit cards to finance their businesses. Credit cards offer the ability to make purchases or take cash advances and pay later. But long-term method of financing, can be costly. Most credit cards will charge 2% to 4% of the nominal value of a cash advance as a "tax", making this method of financing very risky.

Bootstrapping

Another source of capital for the creation of a business is bootstrapping. It 's a way to finance a business, saving rather than borrowing money. And 'being as frugal as possible so your business can be started on as little cash as possible.

The use of private credit cards is the best-known form of bootstrapping, but a variety of methods are available for entrepreneurs. Other forms of funding include the bootstrap owner, the minimization of credits, joint utilization, delaying payment, minimizing inventory and subsidy finance.

While bootstrapping involves a risk to the founders, the absence of any other stakeholder gives the founders more freedom to develop the company. Many successful companies including Dell Computers were founded this way.

Venture Capital

Venture capital is not suitable for all entrepreneurs. This is an option for small businesses that have an experienced management team and very aggressive growth plans, however, venture capitalists rarely invest in small businesses that have no intention of going public. If a company does not have the qualities venture capitalists look like a solid business plan, a team of good management, investment and passion of the founders, a good potential to exit the investment before the end of their funding cycle, and returns minimum target in excess of 40% per year, it will be easier to raise venture capital.

The goal is to venture capitalists to invest in a company for a short period of time - say 5 years - and then cashing business, making a significant return on their investment....